Posted by Russ Sims on October 20, 2003 at 13:11:49:
If you lease/option a home that is encumbered by a mortgage you are violating the DOS clause. Because the DOS clause states that if you transfer ownership or “interest” the maortgage holder can, at their discretion, call the loan due. Giving someone an option on a home is giving them interest in the home, hence the violation. In reality as long as the mortgage payments are made on time and no one takes any pains to notify the bank of a transfer in interest, the DOS clause won’t be envoked or enforced.
If you are lease/optioning a home from a seller you must, absolutly must make the mortgage payments yourself, or at the very least have an escrow company make them. Don’t trust a seller to make them because that’s a path to disaster.
A wrap mortgage is a violation of the DOS clause. As with lease/options the DOS won’t be an issue if the bank never knows of the transaction and payments are maintained.
Russ
Posted by GboroTim on October 19, 2003 at 20:01:12:
Thanks so much for the help thats on this board. A dumb question here, but if someone has a property with a 1st mortgage on it to a bank can they turn around and lease option the property out to someone else w/o triggering the due on sale clause?
if so how does the person doing the leasing w/ option to buy know that the underlying mortgage is being paid by the seller? i’ve heard the term wrap around mortgage, but are they allowed by the bank without triggering the due on sale clause?
Posted by Roger (WA) on October 21, 2003 at 15:59:10:
This is a situation where you need to speak with your attorney about your concerns. We have done many lease w/ option to purchase for years without ever a problem. I?ve had people tell us both ways that it is in violation of the due on sale clause and some people say it?s not. It would probably take attorneys in court to battle it out.
This is probably why I?ve never heard of anyone ever having a problem doing lease options. They even sell major courses on TV about lease options. It?s just one of those things that hinge on the edge but few ever try and push it.
As far as the payments go, we found it best to go through a local bank that handled contract sales. They can set it up to collect and distribute payments and give the buyer and seller statements. A title company can also do this for you.
Please feel free to email me if you have other questions.
Hope this helps,
Roger