The Due-on-Sale Clause Again - No More Mr. Nice Guy - Posted by Bill Gatten

Posted by Brad Crouch on December 06, 1999 at 14:12:16:

Karl, you have a way of asking pointed questions that cause a lot of thought, at least on my part. Thanks!

Frankly, I thought Bill Gatten would have jumped in here to clarify things a bit. He’s probably sitting back chuckling at the thought of my “dumping boxes” out all around the house, looking for some definitive answers to give you (and solidifying some concepts for me in the process).

Or he may just be out of town or something. I have forwarded your most recent question to him, so maybe he’ll eventually provide some better answers.

I must admit that I’m having a little trouble with the concept that Jim Piper has mentioned, and that you seem to agree with . . . that one can somehow be “excused” from a contractual comittment that one has made. I have heard this before, but it has always bothered me a little.

If I sign an agreement, even though it may not be in my best interests or requires me to perform in a manner that later becomes a “burden”, can I ask a judge to nullify the agreement? If so, then why do we use contracts at all?

If the “rights” are mine, can’t I do anything with them I want, including sign them away?

If the resident beneficiary would see no problem with signing such an agreement in advance, it’s hard for me to understand why a judge would overturn such an agreement. All my adult life I have heard that “ignorance of the law is no excuse”. Why is it suddenly a VERY valid “excuse”?

I have ALWAYS stuck to my agreements, even when it was difficult or expensive . . . can you explain why others are not?

Please forgive the tangent.

RE: Your final question . . .

> Given that the resident beneficiary won’t likely go
> quietly into the night after he has defaulted, aren’t
> you likely to end up in court anyway?

The idea is that the defaulting resident beneficiary WOULD “go quietly into the night”. Any legal costs would be deducted from any amount the trust owed him at the time of default. This would include half the amount of principal reduction that had occurred during his occupancy, half of any appreciation that may have occurred during that time, all of any “capital improvement” money that he may have advanced, and the initial money that he had laid out (3 mos of payments, or so, and closing costs). If the resident beneficiary wanted to go to court, he would have to pay those court costs, which would be deducted from any monies owed. If there was anything left over, he would have to accept an unsecured note to be paid when the property was sold (at FMV) and the trust was revoked.

If the matter ever reached a judge, he would look at the documents and say, “let me see . . . you are a beneficiary of the trust that entered into a lease agreement with yourself, right? Why are you here? You’re evicting yourself! Case dismissed!”

> And if so is this a limitation of ANY real estate
> method or tool or can you think of another way to
> amend the PACtrust to cover this.

Maybe this only APPEARS to be a “limitation”. Perhaps it is not a limitation when utilizing a PACTrust. The methods used in a PACTrust can also be used without Bill Gatten or Cal-Equity, or Partners of America Corp.

There was a guy who used to post here (not sure if he is still around) named Kevin. He was saying that he had created the “KevTrust” and was doing the same thing that the PACTrust did. I don’t think it could have been “exactly” the same, because Bill Gatten spent over $100,000 in developing this thing. Lawyers (at least good ones) are not cheap (of course even the ones that are not good, pretend that they are) . . . and the PACTrust documentation is massive. A suggestion might be to get the diskette containing all the PACTrust documentation from Bill. Reading through this stuff might be an enlightening experience.

I sure hope this helps.



The Due-on-Sale Clause Again - No More Mr. Nice Guy - Posted by Bill Gatten

Posted by Bill Gatten on December 03, 1999 at 19:33:13:

For many years I’ve marveled at the number of people I come in contact with, who have actually experienced accelerations of their (creatively financed) property’s loans due to Due on Sale Clause calls. I’ve even given thought to keeping a log and posting it regularly here on CRE (though I haven’t, and I promise I won’t). However, an interesting one came in today that I thought I’d share with you all, pursuant to a recent thread on the subject of the DOS and my supposedly slamming L/O’s in my book.

A Mr. Jack Wxxxer (Mr. X) of Riverside, California called today to inquire about getting all of his properties into PACTrusts™, as it seems his attorney had referred him to us (a dang good attorney there, by gum!).

Mr. X’s motivation had to do with the fact that he just lost out on a 3rd trust deed position in a 19 unit apartment building on which he was carrying a note after having “sold” it on a Wrap. The loan (1st TD) was called. His buyer had a FICO score of less than 680 (his is 680 also); and due to a high LTV no one could re-fi with the current lender, or with any other bank for enough to bail it out (and they haven’t been able to sell it).

It seems the buyer had taken it upon himself, after the quiet subject-to purchase, to have the property placed into his own name without the benefit of applying (or the ability to qualify) for a new loan. He didn’t really think it could be done, he just wanted to ask (a little like trying to pet a Grizzly Bear). So he marched down to the bank (Coast Federal Saving and Loan, Los Angeles) and asked them if doing so would be all right. They said no, checked the title, foreclosed, took his building and tossed him out on the sidewalk.

Mr. X indicates that the payments were always on time, the insurance was in good shape, the property taxes and city taxes were current…absolutely no reason for the foreclosure other than a violation of the DOS.

Please understand that in my business, I get about one of these reports every week or so. So when anyone says (or implies) that it “NEVER happens”…jist ain’t so. “SELDOM happens”…ain’t so neither (unless you’re referring to a specific area of the country or point of reference). “OCCASIONALLY”…Well, OK. “NOT TOO OFTEN”…to be honest, once is too often for me (applies to DOS calls and/or getting caught in a hay bailer).

Now…PUNCHLINE. Would a PACTrust™ have avoided the DOS call in the above scenario? Nope. Absolutely not. Garn St. Germain (12 USC 1701) does not protect you in properties of more than 4 units, (relative to allowing you to vest your property with a trustee in an inter-vivos revocable trust anytime you please).

With 5 or more units, for any change in title, even into a land trust, you need to contact the lender to get their express permission to do so. Then… an assignment of a Beneficiary Interest (if partial only, and without divestiture of the control (directive powers or “voting rights”) could indeed save the day (i.e, because the transfer is then of personalty and not the lender’s security, and it is completely silent and unrecorded).

I honestly don’t want to ruffle anyone’s feathers here on CRE. I’ve done that before and it hurts real much later on (like eating Jalapeno peppers…I mean, we’re talkin’ “Next day Ring of Fire” [Thank you Johnny Cash]). But I do want the record straight on the issue.

If someone chooses to ignore the potential, that’s their business…they can even teach others how they do it, by being intrepid enough to ignore the potential…that’s OK too. Just–please–don’t tell people by the thousands that the potential doesn’t exist…or that it’s minimal! That’s just not true and, as a result, is dishonest. Although propagating such myths is all too often the only way some people can justify what they do or what they teach others to do.

Why not try something like: “Silent loan takeovers by various means can be ideal investment and financing tools. And even though there is always some risk of “the potential for” becoming caught up in the Due-on-Sale issue. Proceed with caution and at you own risk. If you can’t take the heat get out of the kitchen. Now, folks, here some ways one might greatly minimize (though perhaps never eliminating) the risk of ever being so caught up (i.e. #1 through #15).”

Does this make any sense at all? Or am I missing something here?

Bill Gatten

Is this the place where angels fear to tread, but fools walk with a big stick? - Posted by ray@lcorn

Posted by ray@lcorn on December 07, 1999 at 02:16:35:


Far be it from me to question or try to offer any additional points about anything in this thread, especially when such luminaries as yourself, Jim Piper, Brad Crouch and Karl Hartley all join in with your respective expertise. You guys have read more material on the subject than I care to even think about. I’m just a run-of-the-mill greed merchant trying to make a buck on a city block or a country corner here and there. But like my good friend Ed Garcia mentioned, I rarely if ever hear of a DoS problem, but that is probably because I’m in commercial properties.

However, your example piqued my interest this time. In my world, I wouldn’t think of doing what your example buyer did, unless… I was out to screw your Mr. X.

It seems to me, that the scenario you related played out to another ending could develop into a somewhat nefarious plot to hoodoo an unsuspecting, perhaps over-leveraged property owner out of his property.

Consider a fable if you will:

Banker Howard has a loan that has become a real pain in the a**. It’s at three percent, with forty-five year amortization, and a 50% loan to value on an apartment building up in Mt. Pilot. It?s owned by a twit of a county deputy named Barney, who strung Howard out in bankruptcy court last year with no payments for six months, and then got a second mortgage for the equity to consolidate his debts and try to work out of all his financial problems left from a nasty divorce from that tramp, Thelma Lou. The second eats up all of the cash flow, so Barney isn?t making squat on the apartments, but Howard can?t touch it as long as he stays current. Barney will never qualify to refi the place, so Howard is stuck with an under-performing loan, and the bankruptcy judge even disallowed his interest and late charges that accrued while he wasn?t getting paid. Man, Howard?s Board sure won?t let him forget this one. Not only will he not get a bonus this year, they may take his leased Chevy Cavalier with the special banker beige paint away from him, too, unless he thought of something quick, before year-end statements were due.

Howard thinks that if someone were to approach Barney with an offer to buy the place, Barney would jump at it, but he hates to think that Barney would make any money on this deal after being such a pain in Howard’s butt for so long. But if he violated the due-on-sale? hmmmm, a plan starts to form behind Howard?s beady little eyes. He needs some help, though, and he knows just the guy. You see, Howard pays close attention to the sorry players around him in this hot, fetid backwater of a town.

Sheriff Andy has just gotten back from Las Vegas again with another one of those big, ugly guys that doesn’t say much, following him around. Andy tells everybody that he goes off to seminars to learn more about sheriffin?, and the two-ton companion is there to make sure he does what he is taught. Yeah, right. His Aunt Bee was in Floyd?s barber shop again yesterday selling raffle tickets on another quilt she made, saying she needed the money for Opie?s college fund. Hmmph, thinks Howard? If that slingshot totin? terror ever got enough sense to roll marbles downhill, his higher education might be Goober teaching him how to use a hydraulic lift, and Aunt Bee knows it. College, my butt. She’s just tryin’ to keep that skirt-chasin’, double-down loser nephew of hers out of the hospital. Since Howard had to okay raising the credit limit on Andy?s Visa card so he could get out of Las Vegas, Howard thinks Andy could probably use a little cash right now. He ambles over to the courthouse and tells Andy?s shadow to get lost for an hour and he?ll make it worth his time. The goon tells Howard to throw in a shot at Emmet?s saloon and he?s got a deal. Howard gloms a fin to the heavy with a handshake.

“Andy”, starts Howard, “Could you use a little extra cash right now? I mean, I just thought that with Aunt Bee working her fingers to the bone sewing quilts for that fine boy of yours, and what with you making all these trips you go on every month for extra money, well, I just ran up on a situation that I need a spot of help with, and thought I could maybe pay up to, oh let?s say, five thousand dollars for the right kind of help, the quiet kind, if you get my meanin?.” Andy is stunned at his good fortune. Here?s the richest guy in town offering him the answer to his problems. If he can get him up to ten thousand, he can pay off the casino, his credit card, AND that pregnant chorus girl. He decides he better play it cool though. Howard can be nasty when things don?t go his way. “Well Howard”, Andy drawls, “you know I was just studyin? on maybe takin on some part time work. You know that boy of mine tells me he wants to be a road scholar, or something like that, and I guess it?s my duty to hep him git what he deserves. So?s knowin? the way I do that the town cain?t pay me no more than they are, I figure this badge must be good for something. What?cha got in mind?”

Howard lays out the deal.

The next day, Andy approaches Barney to purchase the Mt. Pilot Apartments subject to an existing mortgage or mortgages, using an all-inclusive trust deed, or equivalent instrument for the purchase, for a price over the fair value of the property. Andy tells Barney tells he just has a little bit of cash to put down, but he can make the payments on the inflated price from the rent increase he can enforce with his sheriff badge, and Barney will make more on the payment than he is making on the Apartments without any of the headaches! "Gee Ang? you?re a real buddy. I?ve been worried sick about how I was ever going to get out from under those darn apartments. But how can I take your money without paying off old Howard down at the bank? Andy says, “Barn, you worry too much. Don?t worry about the first mortgage on the property from The Bank of Mayberry, because you will make the payment on it every month, just like usual, the day after I pay you the payment on MY mortgage to you. What Howard doesn?t know won?t hurt him Besides, he?s already a rich man. Why would he be in a hurry to get paid on your little old apartments? By the time I pay you off and need a clear deed, then you will have paid off the Bank of Mayberry, and Howard will never be the wiser. How can it not work? Trust me on this! Piece of cake!”

Barney thinks for just a minute about his old pal, and figures he?s got nothing to lose, and besides, that central furnace in the building will never make it through another winter, and then where will he be? It probably cost five thousand dollars, and he knew that insulation around the boiler had a dangerous look to it. The paint in the place was at least thirty years old, and every window sill was chipped. Better Andy?s problem than his, he thinks. Then there?s his bill down at Floyd?s barber shop. It must be over a thousand dollars now, what with a haircut every week and that expensive hair oil, the kind from those imported snakes he liked so much. Andy?s down payment would cover that and leave enough for a massage at that new place out on the big road. “Okay, Andy, let?s do it. Andy says, “Great Barn, I?ll get Ms. Crump to call up to the mail order house 'Contracts 'R Us” in Raleigh and get us the papers to make it all nice and legal like.”

So not quite a month after Andy buys the apartments, he tells Barney one day that he might have slipped up at the bank.

Barney says “Huh? Uhhh, whaddaya mean ?slipped up?, Ang?”

“Well, Barn old buddy old pal, I was just up at the Bank of Mayberry depositin? Aunt Bee?s quiltin? money in my boy Opie?s college fund, …myyy that boy can shoot a slingshot, he hit ol’ Banker Howard right between the eyes, don’tcha’ know. Howard commenced to cussin’ me and I don’t know what all, and well, I happened to mention to Howard that now that I was a big time Investor and all, it would be nice if he would call me Mr. Andy. He didn?t take to kindly to that, no sir, and I ?spect he got a might madder when I told him just what I had invested in, and that my payments went to pay his salary, which meant he works for ME! Well I declare… he blowed up all purple like- puffed up like a fish-? you shoulda seen it! Then he yelled somethin’ like that no good, low-down, no account, hairy-oiled Barney shoulda knowed the bank gets its money first if he sold those apartments. Said he would see to it he got his and sell them at a foreclosure auction. What?cha think he meant, Barn? Shoot, he can?t get nothin? for ?em at auction? I run all but two of the renters off when they wouldn?t pay the new, thousand dollar a month rent I put in to help make those sky high payments to you.”

The blood drained out of Barney?s head so fast, his heart had to skip a beat to catch up. He fainted dead away, and as he fell, the bullet in his left front shirt pocket caught on the corner of the desk, and went off, straight into Andy?s head.

When the lawyer pounded the gavel on the courthouse steps, Howard had been the only one to bid. The second mortgage had been glad to take ten cents on the dollar for their note after Howard sent them those pictures of the place with the firetrucks out front. And no one else would dare mess with his doings after seeing how he dealt with Barney. With the way things had gone, the Board just might cut him in for a nice bonus this year. They stood to make a tidy profit on Mt. Pilot Apartments, and they had gotten rid of that lamebrain sheriff to boot. And how about a Cadillac? It?s about time he started looking the part of a banker with a reputation. Yes, life is good, thought Howard.

Meanwhile, in a not so clean alley in a not so small city, a thin, emaciated figure in torn, ragged clothes sorts through the debris left in a dempsey dumpster, looking for a meal. He runs across a lot of papers, and wonders how in the world any one in such a fancy sounding place has time to play games about PAC man all the time. A woodchuck bites him right on the end of his finger, and he swears to get even with the one who caused all of this. He counted himself lucky though, if those calls he got from all those people before the foreclosure were anything to go by, he was lucky to get out of town. And after the murder trial where he was found to be insanely negligent, one guy must have mailed him twenty postcards, something about the envelopes. And that other guy made a little sense if he could have just gotten time to clear his head and listen. What was his name? Grouchy? Probably just another scam. But that fish guy, now there was a fellow he wanted to hear from. Everybody knows a carp puts up a heckuva fight. He said he would pay him for a what was it? A quid train? No, a quick drain? No, a QUIT claim on that house of Thelma Lou?s. That b—h, he thought, it?s all her fault. I?ll get her and her new boyfriend. We?ll see who pays the piper!

Too unlikely you say?

Tell that to those who have entered…
…the due on sale zone. Where the real question is… who is due-ing whom?

(my apologies for the liberties taken with copyrighted characters and you thinly disguised, but hopefully thick-skinned and fun lovin?, real folks!)


Re: The Due-on-Sale Clause Again - No More Mr. Nice Guy - Posted by Ed Garcia

Posted by Ed Garcia on December 06, 1999 at 18:20:00:


Just thought I’d bring you up to date. So you don’t get snowed again.

Commercial loans are not FICO driven. As a matter of fact this is the
first time I have heard of someone discussing a FICO in regards to
to a commercial loan. I’ll take it a step further for you. If you need a lender
for units in your area, you can go to World Savings. Their in 25 States, 3 that
do commercial, California, Washington, and Oregon.

As far as DOS is concerned, I’ve heard more about it on this website than I
have in 30 years of being in the business.

I wonder why?


Ed Garcia

Re: The Due-on-Sale Clause Again - Posted by JPiper

Posted by JPiper on December 04, 1999 at 16:54:27:

Hey Bill:

You bring the DREAD DOS clause up periodically?..probably not for the sake of selling more books, but more probably for the good of all us naïve types out here in the hinterlands. And I do note several recent posts regarding this same issue, to include this one.

When you bring up the DOS you almost always bring up how OFTEN this pesky clause is used to accelerate a loan. In the past I have asked you to post specific examples. FINALLY, you have posted one?.a 19 unit apartment building where the guy went in and told on himself! Now Bill, SURELY you have a better example of acceleration than that. I mean, IF you?re getting weekly examples of accelerations under these clauses surely you could give us some real dirt. Where are all the examples of those foolish sellers who sold via lease/option, kept their payments current, and got their loan accelerated? I just can?t figure out how you?re seeing all these accelerations?..and I?m not seeing any. At any rate?.GIVE SOME EXAMPLES of the dread DOS clause in action, with specifics so we can check out.

By the way Bill, since you?re holding all those other course writers? feet to the fire?.I DO have one question that I would love to have cleared up for me while you?re at it. I note that one of the claims that you make for the PacTrust is ?No Due-On-Sale Compromise?. Perhaps you would clarify the meaning of that statement for me. What exactly does that mean???

Does this mean that the PacTrust is an incontrovertible solution to the DOS problem?

Does this mean that no lender could ever accelerate a loan involving a PacTrust?

Looking forward to your answers.


?? Dumb and Dumber ?? in Riverside - Posted by don, sdca

Posted by don, sdca on December 04, 1999 at 24:35:19:


Is there something in the water or is the smog from LA that makes’em grow-up kinda, well, dim in Riverside???

Well color me stupid… - Posted by karp

Posted by karp on December 03, 1999 at 21:04:36:

Nice story,

2 problems…
1)this was a commercial deal that was unfinancable( is that a word?) that the seller was dumb enough to try to do anyway.
2)the buyer was a moron for moron’s sake!

See Bill, I violate the DOS on a very regular basis.
Many times while saving a ouse from foreclosure, I have it Quit Claimed to me, at least temporarily. You know the lenders are checking title once they get to the point of getting attornies and trustees involved, yet I have never had a problem. Nor would I lie about what I was doing… If a lender asked I would explain it in full.

See- I agree in principal with you that the DOS COULD possibly cause a problem for some. But when I have polled zillions of people myself and it turns out the only times any of them have had a note accelerated via the DOS was for:

  1. not paying
  2. being a moron
  3. not paying.

See your buyer in this story is the type who could die in a laundramat from choking on a fistfull of socks just cause he wanted to see how many would fit.

So your story still served to me as a lesson of “Socio-Economic Darwinism” rather than as a real warning.

Now, before you break out the big guns- let me tell you I would love to be wrong on this. I would love to be afraid of lenders and all of the due on sale jail stuff. But my experience paints a rosier picture and I am not quite willing to attribute it to me being “lucky”.


Karl Hartley

PS: the above post does not in anyway take a position against the PAC, now NARS Trust. I have talked extensively with Bill about needs I have for his approach and I find it outstanding.

Re: Is this the place where angels fear to tread, but fools walk with a big stick? - Posted by Bill Gatten

Posted by Bill Gatten on December 08, 1999 at 12:04:09:


I saw that episode. You left out the part where Miss Crump crams the dead gopher up one of Opie’s handle grips and buries it, bike and all, in the beer bottle pile behind Otis’s trailer house.

…But I get the point.


LOL!! This is a MUST read! Ray–you are too much!! - Posted by steph in tex

Posted by steph in tex on December 08, 1999 at 08:34:01:

I laughed my assets off!!! my gosh man! have you been published?! that was great Ray… you made my day!
I’m printing this one and taking it to the convention!
steph in tex

Ray . . . - Posted by Brad Crouch

Posted by Brad Crouch on December 07, 1999 at 03:44:01:

This is a GREAT post! Saved AND printed!


Re: The Due-on-Sale Clause Again - No More Mr. Nice Guy - Posted by Bill Gatten

Posted by Bill Gatten on December 08, 1999 at 19:20:49:


The allusion to FICO scores had to do with their inability to do “anything” much…irrespective of the property in question (…my wording was bad).

No offense, but, honestly, I don’t get snowed too often.

As far as the lending business is concerned, I am the former owner of two mortage companies ("B&B a partnership, and Southwest Mortgage, Hollywood, Calif.), as well as a rather sizeable but short-lived S&L (my error in the mortgage business is that I started in Californin in 1990 (duh!); and as far as the the S&L is concerned, I sold my stock too soon, becoming the only charter shareholder (founder) and officer to make any money before the S&L debacle hit, and it ultimately closed its doors a year and a half after I sold my stock for a nice profit (Westlake T&L and Westlake Savings…circa 1982-86). I also used to own a teensy bit of Bank of the Oaks in Thousand Oaks, California.

But thanks Ed (in all seriousness, I know your post wasn’t intended to besmirtch my canorkis canopis in any manner (as it were), and I always enjoy hearing from (and about) you.

Bill Gatten

P.S., …and until a month ago I shared a parking lot with World Savings (Reseda and Nordhoff, Northridge, Ca.)

Re: The Due-on-Sale Clause Again - Posted by Kelly

Posted by Kelly on December 04, 1999 at 20:18:31:

One of the reasons I had brought up the “due on sale” clause is that I just refinanced a rental house. I dont know if this clause is standard but the way I read it I thought it or one like it would create a problem even if I held a partial interest in land trust and assigned a portion to someone else. It reads:
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) without Lenders prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this security instrument.- Do you professionals think this is the way most mortgages are written or only this particular bank? Would this clause be a
problem with a pactrust as well as land trust?

Re: The Due-on-Sale Clause Again - Posted by Bill Gatten

Posted by Bill Gatten on December 04, 1999 at 18:31:32:


The last time (one of the recent times) I posted on the subject, it had to do with a DOS call by a loan with Great Western Bank in Inglewood, Ca. (now Washington Mutual) and a client I was dealing with in Palmdale, California (I believe it was). Many of the reports of DOS calls come from the people who catch me during the breaks at my seminars to tell me their tales of woe concerning their own DOS calls in the past. Further, I’ve had loans called on my own property. Also, I used to own a bank (Thrift and Loan), and DOS calls were a plan of the day (to “purge our portfolio” as it were). I will begin keeping a record for you, however, though I have not done so to date (as a matter-of-fact I just labeled a folder “DOS Calls” and will keep it at the ready on my desk).

On the other issue you asked about: I don’t know what “DOS Problem” you’re referring to (there apparently isn’t one). However, re. the “DOS Issue” at hand, let me say that placing a property into the borrower’s own inter-vivos land trust, assuring that he does not relinquish control over the property or take it out of his name (i.e. leaves the trust in his own name), or abrogate his responsibilities relative to it, and keeps an open dialogue with the bank relative to its being non-owner occupied and in an inter-vivos trust. The lender should also be notified that its payments are henceforth being handled by a third-party service. Jim, in all candor, this really is about as close as you can come to avoiding the DOS completely (and…you should know…nothing is “incontrovertible” on this site). With this system, there is no sale of the real estate. There is no transfer of title (other than to the authorized trust). There is no divestiture of the lender’s security. There is no impediment to the lender’s pathway to foreclosure. There is no request for release of, or change in, liability. And there is no change of primary payor responsibilities.

Once again, just answer these general questions (PACTrust? or not):

-Can I move from a property I own and lease it out to anyone I please, without a DOS violation?

-Can I place that same property into an inter-vivos trust for asset protection purposes, without violating the loan’s DOS clause?

-Can I assign a beneficiary interest in my own inter-vivos trust (or my will, or my insurance policy) to anyone I choose without violating a DOS?

-Could that assignee of a co-beneficial interest be my next-door neighbor, or one of my tenants…without violating my mortgage loan’s DOS?

-Can any tenant in the world “claim” tax write-off on his triple net lease payments, if he wants to (whether justified or or acceptable to the IRS or not), without involving the lender or it’s DOS clause in any manner?

-Does any lender care (or know) how my rental tenants handle their own personal income tax reporting?

-In the above scenario is there any public notice filed anywhere relative to my assignment of the PERSONAL PROPERTY beneficiary interest in my trust?

If I do all of the above Jim, haven’t I transferred 100% of the Bundle of Rights in Fee Simple real estate ownership to another…without a DOS violation? You tell me (without that silly FHLMB argument that moving out of the house can trigger the DOS).


BTW. How’s your parrot?

Stupid is not a color; its a familial disposition. Karp, Karp, Karp! - Posted by Bill Gatten

Posted by Bill Gatten on December 04, 1999 at 17:30:26:

Here again is the premise of that post…where’s your argument?

[Re. the DOS and seminar givers] Why not try something like: “Silent loan takeovers by various means can be ideal investment and financing tools. And even though there is always some risk of “the potential for” becoming caught up in the Due-on-Sale issue. Proceed with caution and at your own risk. If you can’t take the heat get out of the kitchen. Now, folks, here some ways one might greatly minimize (though perhaps never eliminating) the risk of ever being so caught up (i.e. #1 through #15).”

Regarding your response, Carl, I have done the same things you have…and I’m not afraid of the DOS either…if I’m capable of refinancing, or planning to flip before they could can call it anyway. But what about the guy (or girl) who is attending a CRE seminar who is trying to get started, has no money, has marginal (or no) credit; no experience…just a ho’ lot of “want to,” and an entrepreneurial spirit? Do you tell them, that in a “buy and hold” scenario that they should not be concerned about the DOS? Or do you try to teach them how to avoid it as completely as possible?

Karp, I know who you are (sorta…'saw your picture in a post office once), and I’m sure you just wouldn’t do that. Sure…if you have the wherewithal to know that you could re-fi if you got caught, or if you’re planning to pay the loan off anyway…who cares? That goes without saying: but what about others here on CRE and who attend the various highly touted workshops and seminars by our gurus? Should they be told that the DOS is a toothless alligator and never to worry about it, just because the pros like you and Jim Piper don’t?

Think about this line: “Due on Sale Clause? Never happens. Don’t Worry about it! I know hundreds of CRI’s (maybe 1,000’s) who have never had a DOS call. Just buy my course (the one that employs a dozen techniques, all of which violate the Due on Sale Clause). You’ll be just fine. That be a hundred bucks please.”

Bill Gatten

Ever notice how “Karp, Karp” sound’s like a circus seal with the Croup?

Re: Well color me stupid… - Posted by Jim Pasquini

Posted by Jim Pasquini on December 04, 1999 at 13:51:58:

Congratulations, Yogi. I think it is great that you can continue to steal ‘pickanick’ baskets right out from underneath the nose of that mean old Mr. Ranger. You are truly smarter than the average bear. Screw Booboo, who wants to go and get food the hard way? The problems begin to arise if Booboo ever listens to Yogi and isn’t smarter than the average bear.

Before anyone gets their panties in a bunch I don’t have any problems violating the DOS. I know what I am in for should it ever be called. I have my eyes wide open as it were.

I think the whole message our boy Bill was trying to convey here is simply that when someone asks about the DOS and they receive a bevy of answers telling them it’s never an issue/it never happens/don’t worry about it they are being done a disservice. If you tell a seller that it is a non-issue you are being misleading. It is an issue, it can be dealt with if it happens, and if you are dealing with a motivated seller it shouldn’t be an impediment to making the deal. It isn’t anything to run in fear of, just something you need to know how to handle. Be a Boy Scout and Be Prepared.

Gatten claims that ‘DOS happens’, and you say for all intents and purposes that it only happens to those that have it coming. I don’t fully support your position. Your argument is deductively based.

  1. I am smart and it has not happened to me.
  2. The people I talk to are smart and it has not happened to them.

Therefore, it only happens to you if you are dumber than a box of rocks.

I know this not to be true because someone I know that quite successfully practices and teaches foreclosure investing (though not on television in exclusive locations with extravagant toys so maybe they are better real estaters than marketers) that I will lump in with the smart people that has had a lender accelerate a loan on a “subject to” and not because they pulled any ‘bonehead’ moves. DOS does happen, and not just to morons.

Your reference to a deal being ‘unfinanceable’ being the problem doesn’t hold water with me and it shouldn’t with most folks on this board. Some practice creative real estate because it is a good idea and they can. Others do it because they have to if they want to play the game. The biggest selling point for most of the scheisters peddling get rich quick with real estate is the implied or express promise that you don’t need money or credit (or even that they will provide it) since that is the thing that wannabes think they need to get involved in this business. There is a shred of truth to it as not many new to the game are sitting on a wad of cash and have the credit worthiness or savvy to access much capital. As a result they will pursue skinny or high LTV deals because they want to do a deal and it sounds like they are going to make money anyway. Doesn’t that make most of the deals “unfinanceable” in a traditional sense? If someone like this had a DOS violation enforced on them they would likely lose whatever they stood to gain in the deal and then some.

Something to remember is that we are dealing with factors quite often outside our control. We deal with people that are motivated, but they may not stay motivated for ever. Sometimes they don’t stay motivated and want to change the rules. Maybe they saw an advertisement for Jacoby and Meyers or Larry H. Parker and think you took them so they want their ‘fo meelyon dollahs’ they are sure you owe them. We deal with stupid people. They may just think they are smarter and they are going to do it their way. Our penitentiaries are full of people that thought they were smarter and were going to do it their way and not get caught. Like any secret, with every additional person that knows it the likliehood of it staying a secret decreases exponentially.

Socio-economic Darwinism? ROTFLMAO. I think that is beautiful observation and unfortunately too true. If a lender accelerated on you so what? You would deal with it. The experienced investor can survive things rookies can’t either through guile or resources. If someone was not that experienced and got their butt in this sling they could be in real trouble. I am glad people have a resource like this where they can find help to get through the rough spots with a minimal amount of blood letting.

BTW, where in the spectrum the color stupid found? I’d just as soon go pull all those clothes out of the wardrobe to make sure I don’t wear them any more. :slight_smile:

Re: Well color me stupid… - Posted by JPiper

Posted by JPiper on December 04, 1999 at 09:42:28:


I almost choked on my coffee this morning reading your post!

Amazing when it?s Gatten?s story, you call the guy a ?moron?. However, don?t I recall an amazingly similar story of YOU walking into a bank to inform them of your violation of the DOS? Just exactly what made you a ?hero? in this story rather than a ?moron??? At least I?m assuming that YOUR loan was current.

Anyway, I agree with your post?.just had to acknowledge this tidbit.


Re: Ray . . . - Posted by Pat

Posted by Pat on December 07, 1999 at 12:11:20:

You’ve missed your calling…when does the novel and movie come out?

Re: The Due-on-Sale Clause Again - No More Mr. Nice Guy - Posted by Ed Garcia

Posted by Ed Garcia on December 08, 1999 at 19:57:37:


Your too much. I really enjoyed reading your post until Ray Alcorn came along.
He has got you beat. He is the only one that I know that can tell a great story,
that everybody loves, and I don’t know what he say’s.

I think there was a lot of fun brought to this subject, originated by you, information
given by yourself, Piper, and others, and then Ray came along ,and I’m still trying
to figure out what he is saying. But I think it was great.

You’re a class act Bill,

Ed Garcia

You’re getting hung up on . . . - Posted by Brad Crouch

Posted by Brad Crouch on December 05, 1999 at 03:21:38:


> 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)

> without Lenders prior written consent, Lender may, at
> its option, require immediate payment in full of all
> sums secured by this security instrument.

That’s like saying, “unless prohibited by law, . . .”

Well it IS prohibited by law! The Garn St. Germain Act of 1982.

Lawyers write this stuff to intimidate, even though they know it IS prohibited by law. They are hoping you will interpert the words exactly as you have.

Getting back to the “natural person” statement . . . aren’t YOU a natural person? Of course you are! The “borrower” would have to be a Corporation, LLC, Limited Partnership, Family Partnership or even a trust in order not to be a “natural person”. Again, the lawyers who drafted these words are doing so with the express intention of misleading you.

So the words, “and borrower is not a natural person” negate the whole thing!


Re: The Due-on-Sale Clause Again - Posted by JPiper

Posted by JPiper on December 05, 1999 at 24:05:38:

As Rob mentions, this is the standard DOS clause. Is it a problem? In my opinion…NO. Is there a risk…yes, although it is slight if you handle it correctly.

Both Gatten and Bronchick have courses on the use of trusts…AND there is various information on this site regarding trusts. Take a look at it.