Posted by phil fernandez on May 08, 1999 at 22:00:35:
Fred,
It sounds like you might have done a wraparound or subject to the existing first mortgage. How did you structure the deal and what type of paper work was involved. Did these documents get recorded?
If I’m reading your post right, you still have a first with the bank that you are obligated to pay, whether your buyer pays you or not. You do not want to trigger the Due ON Sale clause with your bank. That won’t make your buyer start paying. Your buyer only has $1,000 into the deal.
Telling the bank about your deal will trigger the Due On Sale clause. But you will be the guy that will have to pay off the bank, not your buyer. The bank might accelerate your loan and come after you for the entire unpaid balance.
I need to trigger D.O.S.!!! - Posted by Fred
Posted by Fred on May 08, 1999 at 20:53:34:
Here’s a quick synopsis of situation.
Bought condo through F.H.A. loan for 58,000
Sold house one month later for 75,000.
Carried a second for the difference, plus stipulated that buyer must also pay 1st,taxes,association etc… in sales contract.Grant Deeded property to individual.
Buyer has been in the condo for three months and the only money I’ve received is the D.P. for 1,000.
I’ve talked to a lawyer and he recommended I either foreclose or walk away and let bank take back property.
Foreclosure will be expensive and walking away is not an option.
My question is:
Can calling the bank to trigger the Due on Sale Clause help me? If so, how? If not, why?
Restructure 2nd, if 1st is current - Posted by MarkHOUTX
Posted by MarkHOUTX on May 10, 1999 at 21:26:03:
If the 1st is current, and you can live without the cashflow, restructure the 2nd into a better deal for yourself down the road – a 5 or 7 year balloon with no payments BUT compounding interest at a VERY high annual interest rate. Your buyer is then motivated to go out an refinance in the next year or so to cash you out and get rid of that high interest balloon, or you collect your balloon at the end of term. Or, of course, if the buyer doesn’t cash you out or go to term on the balloon, or gets behind on the 1st you can still foreclose.
Re: I need to trigger D.O.S.!!! - Posted by Bill Gatten
Posted by Bill Gatten on May 10, 1999 at 17:41:51:
What ever do you mean? Banks don’t forclose on Due-on-Sale Clauses!
Just kidding. In reading the advice you’ve gotten so far, its all excellent and from the best sources. I have nothing offer (as Piper’s jaw hits the floor).
Bill
Re: I need to trigger D.O.S.!!! - Posted by JPiper
Posted by JPiper on May 09, 1999 at 11:12:19:
I’m assuming that you either had the buyer take over your first mortgage “subject to” and then carried a second?.or that you did a wrap around of some kind which is in second position. What isn’t clear here is whether you got a new FHA loan when YOU bought, or whether you took over an existing FHA loan, or whether you formally assumed an existing FHA loan. All of this makes a difference as to how good any particular alternative is. You also don’t say whether the first mortgage is current?.a big factor.
Basically I think there are 3 alternatives.
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If the FHA mortgage is delinquent, you could wait for them to foreclose. This may take a while, because in some cases they are VERY slow. If the first mortgage is current, this one does you no good?.because they won’t be foreclosing. If it’s not, it does you no good because it wipes your second out, and trashes your credit. You could call the lender and inform them that YOU have transferred the property, so that maybe THEY will act under the due on sale clause. IF they act (chances are high they won’t, but let me know if they do), YOU are now required to pay off the loan. If you think foreclosure is expensive I doubt you’ll like this one. If YOU don’t pay the loan off then you YOU will be foreclosed on, thereby trashing your credit.
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You could foreclose on your second. This action is a positive action to do SOMETHING to get this deadbeat out. Yes, it will cost you something. In my area, this would cost about $1000 - $1500, depending on who handled it. Personally I look at this as a cost of doing business. And when it is complete, you have the property back and can resell it. By the way, I would have NEVER sold a property at this price level for $1K down. So when you resell perhaps you could get $5K down?.which will offset some of your costs.
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You could attempt to get a deed-in-lieu of foreclosure. Contact the deadbeat and offer him some cash to leave. This may be cheaper than initiating a foreclosure, and experiencing the time period’s required in your state. HOWEVER, if you get his agreement on this, DO NOT give him the money UNTIL he’s out and the place is left in decent condition, AND, have an attorney handle this for you in terms of paperwork. Make sure you check title, because when you accept the deed in lieu of you will get ALL liens attached to the property?.in other words, if this deadbeat has any judgments they will come with it. I would make my offer to the deadbeat subject to checking the title.
A general comment. One trait that doesn’t work very well in real estate is being “passive”. Right now you need to take some action. I’d probably start with #3?deed in lieu of?.and see where that took me. If that is either not effective or possible do to his credit, I’d go with #2.
This is part of the real estate business?..the part that you should have evaluated BEFORE you sold a property with $1K down. Getting enough cash upfront is key to having a serious buyer, as well as proactive management on your part, and effective screening in the beginning.
JPiper
Re: I need to trigger D.O.S.!!! - Posted by Jeff (Dallas, TX)
Posted by Jeff (Dallas, TX) on May 09, 1999 at 11:03:57:
If walking away is not an option, you only have two alternatives as I see it: 1) get the buyer to start paying or 2) get possession of the property.
Getting the buyer to pay may be accomplished by a strong demand letter combined with the threat of foreclosure. IF this does not work, commencing the foreclosure process may, in itself, be a loud enough wake up call for the buyer to pay up. If he still does not pay and he is unwilling to give you the property back via a Deed in Lieu, your last resort is to regain possession by completing the foreclosure process.
A foreclosure my be less expensive than you think (depending on your state). For example…In Texas, it is relatively easy and inexpensive to have an attorney initiate the process ($200 or so) and not much more expensive to have them complete it ($400 or so)
Something else that you’ll want to consider is that more than likely, your buyer has not been paying the condo association dues. If you take back the property without completing the formal foreclosure procedure, the delinquent dues will still be a lien on the property. On the other hand, if you do foreclose, this lien will be extinguished (depending on your state).
Next time, consider selling on a Contract for Deed or lease/option
Ok… - Posted by Sean
Posted by Sean on May 09, 1999 at 09:13:34:
The first question is this: Does he keep the first current? If the answer is no, then YOU have to keep it current and foreclose.
If the answer is yes, he does pay the first, then you have two choices.
- Foreclose
- Wait
You should do an analysis to determine if the equity in the property is increasing. That is determined by how much principal is being paid on the first, how much principal is accumulating on your second, and how much properties are appreciating in the area.
Also keep an eye out for statutes of limitations. In some states if you don’t take action on the note that someone’s stopped paying on after a certain amount of time you lose the power to do so.
Fortunately, in California, a trustee sale has no statute of limitations.
Re: I need to trigger D.O.S.!!! - Posted by Irwin
Posted by Irwin on May 09, 1999 at 07:44:38:
If your buyer is keeping the first current, the mortgage co. won’t exercise the DOS. And the last thing you want to do is trigger it. If he defaults on the first as well as your second, the first will foreclose - on you. If that happens, I suggest you cross claim and foreclose your second while at the same time keeping the first current. That will prevent you from having to pay the first in a lump sum. (BUT that might not be the way foreclosure works in your state, so ask your lawyer.)
If you have a second, you can probably foreclose it subject to the first and put yourself back in the position you were in before the sale. Or you can do nothing, let your second continue to accrue interest, and wait for the owner to want to do something with it, like sell or mortgage. Your mortgage lien will have to be paid at that time. It might be a long wait, but as long as he’s paying on the first, it costs you nothing.
Have you checked to see who is actually living there? He might have it rented and is satisfied to pocket the difference between the first and his rent. In that case you should probably move against him immediately.
I’m sorry to say that I don’t see any other options.