Posted by Tom Brown on December 11, 1998 at 20:55:52:
I think that everyone knows that tranferring title to a property with a mortgage that contains a due on sale clause violates the mortgage contract. That is not the point.
The point is that the number of times the clause is enforced in relation to the number of times that the clause is violated is a very small percentage. All the bank really cares about is that monthly check. Its when that check stops that the problems begin. (There are always exceptions, but that is what makes the rule.)
More than one attorney has developed strategies to transfer properties and deal with the due on sale clause. Including some that contribute to this site.
My Lawyer says wrap arounds are really fraud ? - Posted by walter
Posted by walter on December 10, 1998 at 11:15:07:
I just received an offer from a seller to buy his home using the existing mortgage but the paperwork(mortgage) from his bank clearly states that the loan can be accelerated and called in if there is any type of sale and they are not paid off.
My Attorney says this is fraud and If I go ahead with the deal I could not only lose my downpayment to the seller but the house as well if the bank proceeds legally ?
Re: My Lawyer says fraud ? - Posted by Bill Gatten
Posted by Bill Gatten on December 12, 1998 at 19:50:31:
The Dreaded Due on Sale clause doesn’t say what the attorney THINKS it does in the first place (the D.O.S. clause being good or bad or neutral). What it says is UNLESS PROHIBITED BY LAW, the lender has a right to…
Well it IS prohibited by law for a lender to take exception to the seller’s putting the property in a living trust (such as a title-holding land trust), and doing what is tantamount to a legally shielded AITD (Wrap) by making you the Remainder Agent or a co-beneficiary of that trust (for a 50%, 80% or 90% beneficiary interest, with an agreement to forfeit his beneficiary interest to you upon disposition of the property, in consideration of your fullfillment of all contract provisions).
If you want to get the deal, suggest that you’ll help the lender put the property into his own trust in his own name, and then merely make you a co-beneficiary in that trust (that gives you 100% of the tax write-off;, 100% of the use, occupancy, possession, equity build-up, principal reduction, right to rents and all sale profits… and any other of the rights under the “Fee Simple Bundle of Rights” you can think of). This way the seller never has to take any chances with you; and you don’t have to take any chances with the seller. The property is henceforth protected from liens, suits judgments, divorce actions or claims, bankruptcies or anything else you can think of, including state and/or IRS tax liens… and the Due-on-Sale Clause is no longer an issue.
As far as the jerk attorney’s suggestion that a Lease Option would be better with reference to the Due-on-Sale Clause, that’s ridiculous! He just wants to make a profit on doing it for you (…and you end up with no tax write-off). He might consider reading the law (the Garn St. Germain ACT, the FDIRA 1982): it clearly states than any lease for more than 3 years OR ANY LEASE WHICH CONTAINS AN OPTION TO PUCHASE is valid grounds for a lender’s accelerating its loan (i.e., IT VIOLATES THE DUE-ON-SALE CLAUSE).
Phew!! These legal beagles who graduated from Dewlap Holler U., and who were sworn in over their fourth Pina Collada just p…tick me off!!
due on sale - don’t read if your sick of it! - Posted by Jason-DTX
Posted by Jason-DTX on December 11, 1998 at 12:34:16:
The due on sale clause is a contractual right that the lender has. They have the RIGHT to call the loan due on a transfer IF they want to. There are not any statutes that prohibit someone from transfering property, it is not a criminal act to transfer property, You won’t be arrested for transfering property and “triggering” the due on sale clause. By triggering the due on sale clause you give the lender an option to call the note due or to not call the loan due. It keeps the lender in control - its their choice. 99 times out of a 100 they will not call a loan due if it is being paid. Every once in a while a lender will get a hair up their but and call it due. Its very rare and a small risk you take. Its not worth giving up the other 99 deals to avoid the 1 fluke.
Ask your lawyer to show you the criminal statutes that prohibit you from transfering a property with a due on sale clause. He wont be able to find any.
Jason
My Lawyer says wrap arounds are really fraud - Posted by Tom Brown
Posted by Tom Brown on December 10, 1998 at 12:39:31:
We definitely don’t need another due on sale clause thread so here is the deal.
Due on sale clauses are in mortgages to protect the bank against interest rate changes. I.E. If you have a 30yr mortgage at 5% and you transfer it to another person who transfers it to another person etc., the bank is only receiving 5% on its money. In the meantime interest rates may have gone up to 9%. The bank would rather have you pay off the 5% note when the property is sold and use the money to lend at a higher rate (if rates are higher at the time).
In general if rates have not changed dramatically, banks only care that the mortgage payments are made on time.
Technically could they call the loan, sure. But in actual practice it is hardly ever done unless the loan is in default or rates change dramatically.
Posted by Marcus on December 10, 1998 at 11:27:42:
He right Walt! I did a land sale agreement on a condo without checking for the due on sale clausew and spent big bucks on legal fees to save my home. Its not that you can’t do it but the risk is too high. Its easier to just get a new legal loan.
Sorry Jason your still wrong especially if the loan is federally guarenteed.
Jason there is a difference between civil and criminal law and Obviously we are discussing a civil matter in most cases.
Bottom line: why advise people to do something that could wind them in court or with large legal fees when there are plenty of safe and legal ways to do deals?
Re: My Lawyer says wrap arounds are really fraud - Posted by Rob FL
Posted by Rob FL on December 10, 1998 at 20:55:30:
I also believe FHA and VA put DOS in (technically assume with qualify) in order to reduce the foreclosure rate. Too many people bought houses with ANQ who had poor credit and didn’t make the payments. Something to do with the RTC/S&L crises of the 1980’s/early 1990’s.
Please document this entire situation. If this is a pain to do, I would be happy to call the attorney/title company that closed this so I can verify it.
I catagorically refuse to believe the due on sale clause was invoked UNLESS THE PAYMENT’S WEREN’T MADE.
If the payments weren’t made: ANY LENDER would foreclose. It has nothing to do with the due on sale clause, it has to do with the payments not being made.
I would love to be proven wrong on this but right now I think there is a whole lot of information in this situation that you are not telling us.
Unless like many, you have BAD credit, and No money down. Then stick with this deal, but do a lease/option to protect yourself.
OR use the “trust thing” …ask around here, someone will know exactly what to do.
Re: due on sale - don’t read if your sick of it! - Posted by Jason-DTX
Posted by Jason-DTX on December 11, 1998 at 21:13:46:
I wasn’t telling the guy what to do, I was just explaining the due on sale clause. He asked a question and I gave him an answer based on my opinion. I based my opinion on my experience of doing several similar type deals such as the one he was asking about.
Civil or criminal, there aren’t any statutes which prevent you transferring property with a due on sale clause.
Have you read any due on sale clauses or the Garns St Jermaine Act? A lender cannot prohibit someone from transferring title, they can only “call their loan” if you do. Most of the time a loan that you are able to take over is behind on payments and has already been called due. What is the lender going to do? Call the loan due twice? Usually they accept your money and reinstate the loan.
You run a bigger risk of being sued by the previous owner or buyer than by the bank. In todays world you are at risk of being sued doing any type of real estate deal!
Bottom line: You (meaning any investor) should not mess with due on sale loans if
It all depends on how much the buyer is putting down doesn’t it? If it’s a NMD deal, what has he go to lose? If he’s making a large down payment then there should be enough equity to remortgage if necessary. If you let DOS scare you away, you’ll lose out on an awful lot of money for very little risk.
Sorry Gang But Walt is correct. I work in a real estate law office and the majority of court cases and litigation that we have result from land sale contracts. You cannot legally and safely sell a mortgage without prior approval.
rest of message that didn’t post - Posted by Jason-DTX
Posted by Jason-DTX on December 11, 1998 at 21:17:28:
Bottom line: You (meaning any investor) should not mess with due on sale
loans if you do not feel comfortable with them.
You are right! There are several ways to invest in real estate. We
should only do deals that we personally feel good about.
Jason
Posted by Jason-DTX on December 11, 1998 at 20:56:09:
Nobody was talking about selling a mortgage!
I believe you about land contracts though. There are several sellers who do them wrong and screw the buyer out of their money and property. They are very risky for buyers especially when sold to by unmoral sellers. For ethical investors land contracts are a good tool to use, and they also allow buyers to be able to buy when they have no other way to get a loan.
Jason