I think I see what the problem is. Typically the “due on sale” language - however it happens to be phrased - is NOT in the note. The note simply is evidence of a debt. The due on sale clause would be in the Deed of Trust or Mortgage, whichever you use in your state, which sets forth all the terms on which the property can serve as security for the debt.
I think that may be the answer.
If not, I’d be happy to search for it for you. Post here and I’ll email you my contact info.
Posted by Chris Abrams on March 01, 2002 at 10:50:08:
On reviewing a potential client’s Truth in Lending Disclosure Statement, I encountered the statement that “this obligation will NOT have a demand feature”.
What does this mean?? Might I be so lucky as to have a loan with no “due on sale” clause?!?!?!?
Thanks in advance for your help!
Chris (A-BEE) Abrams
Technically a “demand note” is an instrument that, like it sounds, can be declared due and payable upon demand. In other words, the note holder can decide at anytime, and for any reason, that they want their money back, and you need to pay them off.
My guess is that the language simply means this is not a demand note, in that if the borrower does not default, the loan will not be called. I would imagine you’d have to read the sections on default and remedies to see exactly what would happen upon default. I can’t imagine the lender would be waiving the right to accelerate in the event of default, because then they would effectively be unable to foreclose.
That’s my read…not an attorney, just an educated layman.
Chris,
This might be a good question to ask over on the legal forum here.
Also, when was the loan originated?
Is it a private loan?
Just curious.
Take a look at the mortgage note itself, and this should help you see if there is a due on sale or acceleration clause in it.
Let us know what you find, I’m kinda curious as well now.
Posted by Chris Abrams on March 03, 2002 at 22:00:08:
After reviewing the Note, the lender can call in the loan (“at its option”) in case of default by the borrower. However, there is no language reflecting a “due on sale clause”.
In fact there is a Waiver Clause in the Note that reads as follows: Borrower and any other person who has obligations under this Note waive the rights of presentment and notice of dishonor. “Presentment” means the right to require Lender to demand payment of amounts due. “Notice of dishonor” means the right to require Lender to give notice to other persons that amounts due have not been paid.
This was orginated as an FHA Loan in March 2001.
It leads me to believe there is truly no acceleration clause other than in case of borrower default. Am I the only one who’s seen this before?
You seem to be confusing the “due on sale” provision with the “demand” provision.
Most mortgages do not allow for the lender to accelerate unless the borrower defaults. That is standard. However, conveying the property without paying off the loan may be considered an instance of default. Thus acceleration is allowed.
If this is a one year old FHA loan I absolutely cannot believe there is no due on sale clause. You may be missing it, but I would bet money it is in there.
The “waiver” language simply means that the lender can accelerate without following certain formal court procedures. Again, not really on point.
Posted by Chris Abrams on March 04, 2002 at 15:20:58:
Thanks for the reply. Clearly, unauthorized transfer of title could be categorized as an instance of default and thus, cause for loan acceleration. However, there is no language regarding “title transfer without permission from the lender” contained in the note.
I’d love for someone to review the Note and find the clause. Of course I may be missing it due to senility!!! Us old guys need help from time to time!!