THE DEFINITIVE DUE ON SALE CLAUSE ANSWER - Posted by Bill Gatten
Posted by Bill Gatten on April 09, 1999 at 19:30:36:
Everyone thinks they have this DOS thing down to the nit, and are all making excellent points in their denial here, and have the definitive answers (me included); however, here’s the real deal:
I agree. There is nothing wrong with “violating” the Due on Sale Clause if you have a back door. If you know you could handle the problem if it ever arose… who the h… cares?
Further, the chances of a lender calling a note “at it’s option” are slim… unless, of course, they exercise that option (but, isn’t that a bit circular?).
Further… the phrase Rick refers to (the best posting of the bunch, so far)–“at the lender’s option”–is not there to help anybody out. It’s there so that the lender can “opt” to approve a subject-to take-over, if they wish without having to dismantle a high yield loan at a time when interest rates on new loans are low.
None-the-less, whether or not a lender would so “opt” is anybody’s guess… but it’s still a GUESS none-the-less.
Have any lenders ever so opted? Duh. Will they in the future? Yes, if they so opt. Will they so opt? If they have a good reason… yoobet.
Would I (me personally) worry about it? No… I no longer fly any higher than I’m afraid to fall ('learned my lesson on that issue real good). However… would I sell a property to someone who was willing to fly higher than they could comfortably fall (irrespective of whose “problem” it may be)? Maybe. That would be their choice. But would I pass the DOS off on them, knowing that? No… not if there was a good way to avoid violating it completely (not “circumvent”… “avoid violating it”).
Do people entering AITDs, Land Contracts, Lease Options, Lease Purchases, Sandwiches, Equity Shares and PACTrusts ever choose to fly higher than they can afford to fall? Yup!
Can one really circumvent the Due on Sale Clause? Sure. Simple. Just make sure the bank [probably] won’t find out. Is that always possible? Well, no, not normally… no matter how careful you would be your buyer under the AITD may not be as careful as you about property tax, insurance, prompt payments or litigious stuff hitting the fan.
What about just not recording the deed, certificate, affidavit, memorandum or notice? Well, that’s a pretty stupid question, isn’t it?
Can a buyer sue you for a purchase they made Subject-To without the lender’s knowledge three years ago that went sour because of a foreclosure by the lender (even though they accepted the exculpatory clause you put in)? Yes (they can sue you for wearing a wrinkled gorilla suit, if they “opt” to).
OK then, is there a way to effect a Seller Assisted Financing arrangement without subterfuge? Yeah, but (like JPiper said) even that could get you sued, irrespective of whether or not they’d win.
But, in all candor, is one method preferable over the others? You tell me (figuratively speaking, of course: that’s actually a rhetorical statement in the form of a question… this thread, like me, is already too fat) Just think about it.
If you want to know whether banks foreclose on DOS violations or not, ask Mr. De La Cuesta of the landmark Del La Cuesta vs. US Fidelity Federal Savings & Loan case that led to the Garn-St. Germain ACT in 1982. He felt at first as many of you may… until US Fidelity reamed out his naval (as it were).
DISCLAIMER: All misspelled words and grammatical errors are on purpose.