L/O's vs. "Due on Sale" clause - Posted by Lora92

Posted by Innovator on April 09, 2006 at 02:38:27:

Right on! However, I don’t agree that all the investors get around the DOS using the trust. Most of the gurus preach it’s not a problem so don’t worry about it. I’m a NARS network member so I know all about the king of land trusts, Bill Gatten!

L/O’s vs. “Due on Sale” clause - Posted by Lora92

Posted by Lora92 on April 06, 2006 at 14:00:35:

I dont get it. I’ve read about L/O and Contract for Deed and I would love to use one of these to sell my condo. But a lawyer friend of mine said that both could trigger the ‘due on sale’ clause. Not probable but possible. How does anyone get around this? Is this just for people who own their property outright? The CD I might be able to understand but the L/O I dont get. If all you are doing is “leasing” the unit to the potential buyer with just the “option” of buying it (which would be contingent on him getting financing I would presume?), how is this changing the title over to this person. He may not excercise his option. Can someone explain this to me?? Thank you so much for your help!!

Re: L/O’s vs. “Due on Sale” clause - Posted by Luke Hoppel

Posted by Luke Hoppel on April 08, 2006 at 20:05:55:

When you use a lease-option, you are giving “interest” in the property which as the last poster mentioned, does trigger the Due-on-sale but honestly, how would the lender ever know? They wouldn’t!
As far as the contract for deed goes, a lot of people use land trusts to transfer “beneficial interest” in the trust which holds the property. Ask your lawyer about it.
Good Luck,
Luke

Re: L/O’s vs. “Due on Sale” clause - Posted by dutch

Posted by dutch on April 07, 2006 at 08:09:19:

Brad is correct. However, I wouldn’t worry about it too much. First, on a Lease/Option, these are 2 seperate contracts and if you keep the option under 3 years, no problems. On a CFD, technically it triggers the DOS, but since the contract is not filed (you DON"T plan on filing it,do you?), and the deed doesn’t change, your lender has about a .005 chance of finding out.

Dutch

Re: L/O’s vs. “Due on Sale” clause - Posted by Brad Crouch

Posted by Brad Crouch on April 06, 2006 at 16:46:59:

Lora,

The Garn St. Germain act of 1982 governs when the "due on sale"
clause can be triggered.

It states that any lease longer than 3 years, or any lease containing an
option to purchase, can trigger the due on sale clause (sometimes
called an “acceleration” clause).

So a lease for less than 3 years (2 years, 11 months and 29 days. for
example), will not trigger the “due on sale” . . . Unless an option to
purchase is present. In which case, the lender has the right (not the
obligation) to call the loan “due”.

It may be helpful to “Google” the Garn St. Germain act.

Hope this helps,

Brad

How will lenders ever know? - Posted by Innovator

Posted by Innovator on April 08, 2006 at 23:02:49:

Hiding things from lender’s is bad business!

They’ll know as soon as you try to insure the property. If you try to change the existing policy they will still send a loss payable to the lender.

Re: How will lenders ever know? - Posted by Luke Hoppel

Posted by Luke Hoppel on April 09, 2006 at 24:21:48:

I could be wrong but in my understanding of innovators post, he/she was attempting to lease-option a home they owned therfore they should already have it insured.
Am I missing something?

Re: How will lenders ever know? - Posted by Innovator

Posted by Innovator on April 09, 2006 at 02:06:17:

You are right on the L/O. I was commenting on the transfer into a trust. Anytime the deed is transfered the DOS comes into play. As long as you remain the owner on the L/O the insurance should be in place unless this is the first time you are L/O it. If it is you need to convert your insurance to a renters policy.

Re: How will lenders ever know? - Posted by Luke Hoppel

Posted by Luke Hoppel on April 09, 2006 at 02:28:49:

Sure the lender will see that the deed was placed in a trust but a lot of people put the properties in trusts for asset protection purposes. The lender is not going to complain about this. You then change the beneficial interest to you. This is a very common practice by succesfull sub-2 investors. Sure it’s techincal and not complex but very doable. That’s how all the investors get around DOS.
Check out Bill Gatten’s land trust: http://site.landtrust.net/