Spole with major lender's atty today re. DOS policies and guildelines - Posted by Bill Gatten

Posted by LIsa on December 12, 1999 at 08:50:09:

Can anyone participate in this telementoring session? If so, please forward info.

Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Bill Gatten

Posted by Bill Gatten on December 08, 1999 at 18:50:24:

Pursuant to a long thread below (that Piper screwed up by asking really hard questions), I took it upon myself to contact the legal department of Countywide Funding and Countrywide Home loans today and ask some questions of one of the foreclosure attorneys. [We hold over $20,000,000 in PACTrust properties in mortgages that CW has funded]. I know this issue has been discussed (waaaaaay too much) here on CRE, but I thought it would be interesting to delve into what banks REALLY do with Due on Sale violations.

I was going to call several lenders, but this one took nearly an hour of voice mail referrals, number punching and buck passing before I finally got to the person I did.

But here is what I’m told (as verbatim as I can make it):

Q: Do lenders such as Countrywide regularly foreclose on Due on Sale Violations?

A: “Yes. I can’t tell you about others (other banks), but our policy and my job is to foreclose immediately on any loan officially in default wherein we pick up an unauthorized transfer of title. And [in answer to a sub-question here:] we would not reinstate the loan without a formal assumption by the new buyer.” I know, 'doesn’t make sense; but that’s what he said…if the buyer assumed it, it would have to have been reinstated…?"

Q: What about foreclosing simply because of an unauthorized transfer, when the loan payments are current and nothing else is wrong?

A: “If we found out about it, we might–depending upon the situation.” To me this means “if it was to our benefit.”.

"If the property was transferred to a relative or spouse we wouldn’t care. But if it were just a transfer without an assumption, then we might…though I don’t know of any recent cases like that, and we don’t go looking for them unless there is a problems with the loan…late payments, unpaid property tax, or insurance cancellation. If we don’t know about it, then there’s not much we can do about it: and if there are no problems, we’re probably not going to know about it. "

[He indicated here, though, that one thing that does happen, is where such a transfer takes place and the new buyer tries to pay the loan with its own check. The checks are returned with a demand for payment by the original borrower. In these cases, sometimes the payments are so late in coming, because the borrower/seller has moved away, that the lender has to start foreclosure proceedings. And during that time they discover the transfer. My source couldn’t specifically recall any foreclosures for certain, but said that in a couple of the cases that he knew CW required that the loans be formally assumed before they would accept any checks from the buyer]

At this point I asked what would have happened if the buyer could qualify for the loan…his answer was that they would have to foreclose, but trailed off with “?but it all depends…”.

Q: What about someone transferring a property into a living (e.g., “land”) trust?

A: “'Happens all the time, and that’s OK, as long as its the right kind of trust and nothing changes as far as the property, the payments and our loan’s security is concerned. The person guaranteeing the loan is still the same person guaranteeing the loan: trust or not.”

Q: What about someone leasing out a property with an option to buy?

A: “We don’t care about rentals or leases of any type, as long as the payments get made and the property is not sold to someone else.”

When I asked about the lease option in particular, he didn’t seem to know, or be at all concerned about, the issue of an option being included in the Garn St. list of justifications for lender’s Due on Sale call, and I didn’t push it.

…for whatever it’s worth.

It might be interesting if some of you would take it upon yourselves to call a lender’s legal department or two in your own area and ask the same questions, and let us know what they said.

Bill Gatten

Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Eric Anderson

Posted by Eric Anderson on December 11, 1999 at 22:32:58:

Dear Bill,
Please, please don’t give up on us. I greatly appreciate your work. I’ve got your book. Don’t understand it, but that’s my fault, I got started when Nickerson wrote his book (have YET to make my second million–gave up on the first). So, I’m an old codger trying to stay even with you brilliant types and enjoying every minute of it.
Keep up the good work.
Eric Anderson

Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Mark (SDCA)

Posted by Mark (SDCA) on December 09, 1999 at 10:23:42:

Again, I have to completely agree with JPiper. What did you expect the banker to say?
"Yes, we put the DOS in there but under no circumstances would we ever enforce it?"
Now, THAT would have astounded me.
Also, I too have heard that “whose name is on the check matters”. These are low paid, data entry people who are just 10 key touch experts. They aren’t doing any auditing. They are just punching in the account # and payment amount and moving on to the next account.
I thought the most telling statement was the one about trusts anyway. Get Bronchick’s course on Land Trusts and ignore whatever else the banker said.


Re: Spoke with major lender’s atty today re. DOS policies and guildelines - Posted by Bassman

Posted by Bassman on December 08, 1999 at 23:20:42:

Was curious about all the DOS talk. If you are truly setting up a Trust , why wouldn’t you also set up a Trust account at the bank ? As Trustee you are allowed (and I thought required) as your fiduciary obligation, to set up an official bank account from which payments are to be made from and to.Since the Trust is owner of the property it would only make sense to have a check from the Trust to be sent to the Bank , thereby ensuring the Bank that it has actually been placed in a Trust for estate purposes.With this paper trail you can prove in court that the trust has been legally executed.
I think that is why so many people have troubles with probate is because they place things in living trusts but never finalize the process.
Yes , it is an extra $10-15( maybe) expense per month to set up a bank account for the trust, and maybe some extra paperwork, but , if it keeps you from being sued why not? And , it will make you look even more honest to sellers when you show them what you are doing to protect them.
Just my thoughts.
Scott Cooper

p.s. Bill what is Spole? LOL

Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Ed Garcia

Posted by Ed Garcia on December 08, 1999 at 21:59:43:


It just so happens, I plan to have Countrywide in my office tomorrow.
While their here, I will have them give me a name in their legal department.

Bill, I try to stay on top of what’s happening in the finance world.

Now we both know that there is nothing more constant than change.

The last time I talked to Countrywide, they do a pass through with their deals.
Meaning, They originate the loan, sell it off, and keep the servicing.
Countrywide is probable the number one servicer in the country.

They have different buyers for their paper on each coast, so does North American.
That’s why sometimes the cost of mortgages differ in different parts of the country.

Now it’s true that they have a legal department that handles their legal problems.

But let me tell you Bill, when a borrower makes a payment it goes to a different
department. It’s a paper mill. The only thing that attracts them to an account is

Bill, lets face it you were talking to the legal department of the company.
What would you expect him to say when you ask questions that you did in your


Your questions as follows,

Q: What about foreclosing simply because of an unauthorized transfer, when the loan payments are current and nothing else is wrong?

A: “If we found out about it, we might–depending upon the situation.” To me this means “if it was to our benefit.”.

Bill, I have the utmost respect for you, so I’m not going to break down your post and
attack it. In your field you’re the man. (As a matter of fact, believe it or not, I plan to
attend one of your workshops.) just don’t tell Piper.

Back to the subject.

What would you expect him to say he don’t know you, or who you represent, or if your
a plant, or who you know, or who you talk to. Get my point.

A: "Oh no, were much to busy because were already understaffed as it is"
No, I don’t think so. I think you got the answer you could expect.

Why didn’t you ask him, How many forclosures did you do because of DOS last
year? I bet he wouldn’t tell you…

Buy the way Bill I tried to buy a foreclosure for my uncle earlier this year, and it was a pure case of the blind leading the blind because that company is so big.

The only reason I’m stepping in here is because I don’t want to see people in fear because
of scare tactics, that I don’t think you mean to project.

I think its a known fact that when you assume a loan that is not assumable, your at risk.
The question is, is it worth taking that risk? Many times I have taken it because it was worth it to me. I knew that they could call the loan, and I would refinance it if they did.
By the way I can’t tell you how many deals I’ve done over the last 30 years, and it never happened to me to this day.

As a matter of fact, lets clear the air. Will anybody who has been foreclosed on because of A Due on Sale Clause please come forward, and tell us of your experience.

There you go Bill, stand back, because here they come???

I still think you’re a Class Act,

Ed Garcia

A Rule of Thumb… - Posted by JPiper

Posted by JPiper on December 08, 1999 at 21:30:59:

Way back when my Dad told me ?Son, believe about 10% of what you hear?. Now honestly, I followed that rule religiously for years. Eventually that rule was supplanted by ?Watch what they do, not what they say.?

I wouldn?t expect ANY lending institution to come forth with their criteria regarding DOS or accelerating loans. I would find it to be a total waste of time to query lenders regarding this. If nothing else, it might serve to heighten their vigilance.

I had a long conversation a number of years ago with the president of a bank. This banker by the way was in the process of acquiring a property from me BECAUSE she did not have the down payment to obtain a loan!

Her comments were that the first step in acceleration would be doing something that caused the loan to rise to the top of the pile. What would that something be? Well a late or missed payment would certainly be a start. They can’t accelerate what they’re not aware of.

I think one thing that I have proven over the years is that payments made by someone other than the borrower is completely irrelevant. I do it ALL the time?.although I have no loans at Countrywide. One thing that you can be certain of though, is when your payment arrives at the bank, it?s handled by a data processing clerk. Every watch how fast they key information in? Do you really think they?re looking for payments made by someone other than the borrower? Forget it.

Watch what they do, not what they say.


Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Rob FL

Posted by Rob FL on December 08, 1999 at 20:53:10:

I have violated the DOS clause on several loans by transferring the title into a land trust and assigning the beneficial interest. Any other way would cause an obvious red flag. I acquired a property with a Countrywide mortgage in September. Added my trust’s name to the insurance policy and mail my checks on it now. 3 payments later and no word from Countrywide. They didn’t seem to pay attention to the insurance or the check changes.

I have also violated the DOS with Bank of America, Irwin Mortgage, and SunTrust to name a few. Haven’t heard a word from them either even though the name on the checks, taxes, and insurance have changed as well. In 1997, I spoke with the loan underwriter at Nationsbank on a new loan and asked them about DOS violations. She told me flat out that they don’t care what happens once the loan is closed as long as the payments are on time. I went ahead and transferred the title on that one as well. 2 1/2 years later and not a peep from them.

I read a federal court case a few years back. I wish I could remember the case #. The gist of it was that once the bank was put on notice of a transfer either by insurance or tax roll changes or otherwise that they must immediately declare a default. Otherwise they are “estopped” from filing a foreclosure. I may try to research that case again. It was sometime in 1994 or 1995.

Re: The Spolen Word - Posted by BRnBA

Posted by BRnBA on December 08, 1999 at 20:40:05:

Thanks Bill, good information however, I sure hope fellow investors don’t go running out making the DOS an issue of focus for the lenders. It is bad enough that it is made a daily (almost) issue here on CRE. Next thing you know John T. Reed will be brought into this thing and you know how much we all value his opinion.

Spoke, spoke, spoke! Not Spole! Gawd!! (nt) - Posted by Bill Gatten

Posted by Bill Gatten on December 08, 1999 at 19:26:10:

What’re looking here for? I said “nt”! “Spole,” indeed!

Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by WilliamGA

Posted by WilliamGA on December 08, 1999 at 19:06:52:


One question about your post.

Am I understanding correctly… You risk discovery of transfer of title by paying the mgt pmt with your own check instead of the sellers check? If so, what would be the safest way to make the pmt? A money order would still have your name on it. Does this mean that the person who keys in the pmts actually tips someone else off in another dept. that someone else is making the mgt pmt?


Thanks for the info.


Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Lisa

Posted by Lisa on December 10, 1999 at 20:10:30:

Can you elaborate more on land trust? Why are these beneficial?

Re: foreclosure 3 times for dos violation - Posted by leslie bates

Posted by leslie bates on December 16, 1999 at 02:21:28:

each was due to a missed or too small payment. (one was an adjustable on the way up.)

Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Bill Gatten

Posted by Bill Gatten on December 10, 1999 at 20:12:18:


I agree with everything everyone is saying here…the point I tried to make in my post was that the guy essentially DID say that they don’t give a hoot so long as the payments are on time (You’re right! You’re right!).

What I’m apparently doing a bad job of is conveying the message that this is NOT my concern…my concern is what would they do if the payments are NOT on time and if the insurance IS cancelled and if the property taxes are unpaid, and/or if the lender merely wants to purge its portifolio to sell it off, etc. etc. etc. If you’re not concerned with these issues, then this post was never pointed at you anyway.

The term “scare tactics” is waaaaay off… if your want “scare tactics” read good ol’ John T. Reed’s treatise on the DOS issue (and Lord knows JT always has the facts).

Bill Gatten

P.S. here is a response to someone who posted here telling everyone to read what JT Reed had to say, assuming he had discovered an epiphony in truth.

Dear Jim,

This guy is a known idiot (in my opion). He has appointed himself the God of All Real Estate and without basis or fact ranks people he doesn’t like, or those who disagree with him in any way.

Virtually all the people I know in the business take Reed with a grain of salt. Much of what he says is bogus and the rest of it designed to sell his book, at the expense of anyone else who ever dared to write one and incur his wrath.

Here’s the paragraph you’re referring to (note the parts that I put in CAPS):

"17. Transfer of the Property or a BENEFICIAL INTEREST IN BORROWER. If all or any part OF THE PROPERTY, or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred AND BORROWER IS “NOT A NATURAL PERSON” (real that last phrase again) without Lender’s prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, THIS OPTION SHALL NOT BE EXERCISED BY LENDER IF EXERCISE IS PROHIBITED BY APPLICABLE FEDERAL LAW law as of the date of this Security Instrument.

If Lender does exercise this option, then Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower. "

Now Jim, This is called the drafter’s “Reliance on the Cognitive Rgidity of the reader (they think you won’t figure it out because you’re expecting to see something else in the sentence are are not consentrating on or don’t understand the pharase “natural person”)” Consider instead that the borrower IS A “natural person” (i.e., not a corporation or partnership or Rotary Club or something)." This means then that the borrower need NOT be concerned with the pargraph and can indeed “sell or transfer” beneficial interest in borrower till the cows come home (if not they’d say so). Furthermore, look at the line that says none of this holds if it is prohibited by Federal Law. Well…that’s what the Garn St. Germain “Law” is for (12USC 1701 (etal)…to prohibit lenders from stopping ANY borrower from transferring his property into an inter-vivos, revocable, beneficiary directed, title holding trust (land trust or not) in which he is and “remains” a beneficiary and which does not relate to
a transfer of the rights of occupany (the lease does that, not the trust). The US Code of Federal Regulations concering leaving the property notwithstanding)

Hope this helps.


---- Original Message -----
From: James Watson xxxwatson@earthlink.net>
Sent: Wednesday, December 08, 1999 9:09 PM
Subject: DOS

> Bill,
> This article seems to totally disagree with your interpretation of the
> due on sales clause. Note that the version of paragraph 17 you teach is
> different from the new paragraph which (im my opinion) clearly states
> that the dos triggered by actions similar to the Pact Trust.
> http://www.johntreed.com/dueonsale.html

Re: A Rule of Thumb… - Posted by Bill Gatten

Posted by Bill Gatten on December 10, 1999 at 18:32:51:


As you known, I used to be bnker and I did what I said I would…when I needed to.

No offense (I love you like my former neighbor’s cousin’s brother’s best friend); but YOU’RE STILL NOT GETTING THE POINT (and that is my fault entirely…not yours)! You think I’m trying to sell books and tapes by harping on this issue…I’m not…(I coined the phrase “God Forbid” in 1949,and the royalties from insurance agents and Presbyterians are keeping me in grand style) I’m merely trying to reach some closure here, and trying to remain one of the boys).

I am NOT saying that lenders go around trying to forclosue on DOS’s all the time just becasue they could if they felt like it (unless, of course, they would have a very powerful agenda dictating that they “should” do so: e.g., bad times having befallen the bank, or “cleansing” their portfiolio to sell out to another bank; or an obligation under conforming loan guidelines). What I am trying to get across (with little or no effect) in all of this is that some of us creative investor souls (or our buyers and sellers) may (in fact) at times, through no fault of their (or our) own…can find themselves falling behind a payment or two, and being forced to delay insurance premiums or property taxes for a while…all of us are not reallly, really, as rich or well buffered as the Pipers of the world (at first). What I’m trying to say is that there IS a vehicle which will most likely, in all probability, most probably, highly potentially…maybe…(I think pretty confidently) avoid the liklehood of a lender’s learning that (or claiming that) the property has been illegally tranferred and calling the loan relative to a corrected default (even with VA, FHA, GNMA or FNMA loans).

If any one read last month’s issue of A.D. Kessler’s CRE Magazine, you’ll see what I’m up against here: Two months earlier Bill Bronchik has written an excellent article called “There is No Due on Sale Jail,” the following month, I wrote an article on the same subject with a different perspective. Then this month, some ding-dong attorney in Salt Lake City (Fredercik Tingley…bearing a strong photographic resemblance to Nikita Kruschev)) wrote an article in the “Legal Corner” which is generally occupied by Bill Bronchik, but which featured me the month before. He (Tingely) stated unequivocably in his article that using the Illinois Land Trust to skirt the due-on-sale clause would never work. He cited a 19 year-old pre-Garn St. Germian case (Williams v. 1st Fed. S&L, 651 F2; 910)), where Ms. Williams had put her property into a land trust in someone else’s name (clear DOS violation right there), and assigned all of interest in it to someone selse (another DOS violation right there) and gave up 100% of her power of direction and control (another clear violation). The good Mr. Tikngely then states (or asserts): therefore, that the Illinois land trust has been shown to be ineffective in circumventing the DOS (“A nail was driven into that coffin by the Willaims case,” he said. Baloney!).

Jeez! This ires me, Jim! This is the kind of junk I have to contend with every day with SAKIA’s and attorneys who have only half the picture! Think about it…IF YOU JUMP OFF A CURB WITH A PARACHUTE, YOU’LL NO DOUBT HAVE GOOD PROOF THAT PARACHUTES JUST DONT WORK…ESPECIALLY IF YOU WENT TO SCHOOL TO STUDY CURBS AND FAILED TO TAKE PARACHUTES 1-A WHEN IT WAS OFFERED!

The PACTrust™ uses a land trust, but doesn’t entail any of what he’s talking about (no change in name, no divestitute of control or “voting” rights; no relinquishment of all of the interest to someone else (until its over with)! No divesiture of occupancy within the trust document, etc.!


Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Joe P

Posted by Joe P on December 13, 1999 at 17:57:56:


Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Bill Gatten

Posted by Bill Gatten on December 10, 1999 at 17:38:04:


I would imagine the regulation you are refering to probably is directly related to servicers of FHA, VA, FNMA and GNMA loans wherein the investor sources (insurance companies, securities companies, pension funds, etc.) investment security would be compromised if a conforming loan servicer knowingly allowed an unauthorized divestiture to take place (I do know they’ll look the other way as much as they can, but if the cape gets wagged in front of their face, they have to move on the foreclosure).

Bill Gatten

Re: Rob, I’d be very interested in reading this - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 09, 1999 at 12:07:31:

I’ve tried to find exactly this information (regarding lender’s requirement to declare default immediately) but have not been successful. Please post any info if you can find it again.



Re: Spole with major lender’s atty today re. DOS policies and guildelines - Posted by Ed Garcia

Posted by Ed Garcia on December 08, 1999 at 22:23:22:


I just want you to know that I have been writing down all these lenders that
you have been violating, so I can call them in the morning and report you.

Did you leave anyone out?


Ed Garcia

Excellent point. - Posted by Bill Gatten

Posted by Bill Gatten on December 10, 1999 at 17:26:17:

NOBODY who isn’t worried about the DOS should start worrying about it!!

I merely insist that those who are. or whose buyers and/or sellers are… could use a PACTrust™ to assuage their fears.

Personally, I have about much regard to Old JT as you do, from what I’ve seen and heard about him so far. A lot of what he says has some merit: much more, unfortunately, is pure “inert coot (as it were).” And when they elected him High God and Dubber of Knights within the Creative Real Estate Realm, I didn’t get a chance to vote.


BTW, I got another report of yet another DOS call (on a SFR residential property yesterday from a gentleman by the name of Walter Evans in Victorville, CA. As I promised Piper, I’ll keep the reports c`oming as I get 'em (he sorta called me “Liar, Liar, Pants on Fire” so now I have no choice but to just annoy the h*** out’a everybody)…most folks don’t want their names mentioned when in these cases, but Evans (a Realtor) said he didn’t mind).

Bill Gatten