What happens if due on sale is inforced? - Posted by Randy

Posted by Glenn on November 26, 1999 at 10:21:34:

Are you willing to assume the legal risk for the ‘slim’ lender who enforces DOS. It sounds like you are giving sellar legal advise which could lead to suit if sellar is damaged. Why not consider PACTrust (banner above) to eliminate the risk.

What happens if due on sale is inforced? - Posted by Randy

Posted by Randy on November 24, 1999 at 13:02:08:

If for the rare reason the lender does find out that a property was sold subject to existing loan what would happen? If they called the loan due would the new buyer have to get new financing for payoff. Would’nt this put the seller in a real problem. They could have their credit damamged if buyer couldnt or would’nt pay off loan. What do you tell sellers when they ask these questions?

Re: due on sale… - Posted by Bill Gatten

Posted by Bill Gatten on November 26, 1999 at 15:51:29:

Here’s what I say (and I NEVER have the probelm you are referring to…though, believe me, I used to):

"Well, Frank, in order for you not to risk incurring the possibility of the lender’s calling your note, whether they would or not, relative to our little deal here, let’s just put the property into a title-holding trust for you–in your name–and NOT transfer the title to me at all.

I’ll just become a co-beneficiary in your trust until I can sell or refinance. In the meantime, we’ll execute a Lease Agreement between the trust and me for my posessory interest. As far as control over the trustee is concerned, you can just give me a Power of Attorny to vote your directive interest (as it were) should a directive issue ever come up (e.g., capital improvements, repairs, building permits, early termination, etc.)."

Note, Randy, that this process (the PACTrust) ends up giving me all the benefits of ownership (including tax write-off) without title-transfer and without risking any DOS call or involving the lender in my personal business.

Is the DOS violated when this is done? NO!!! (Dag nabit!) 'Tired of fighting this battle! No! No! No! There is no sale of RE, there is no unauthorized transfer of title, there is no disguised security agreement, there are no Options involved…and there is no DOS violation!

For the purist, however, I do acknowledge that the Due-on-sale Clause is (can, however, be) considered to have been violated when the mortgagor moves out of the mortgaged property (e.g. FHLBB’s interpretation of GSG…12USC1701) exactly the same as it would have been if ANY mortgagor opted to rent, lease or just leave his property vacant. So show me a lender (other than specialized government sponsored first-time homebuyer programs) that has ever called a note for those reasons ('sure would shut the rental business down and create some big-time homelessness in a hurry, wouldn’t it?).

Though quite rare in the minds of some, lots of conforming and non-conforming lenders have forclosed for transfer and conveyance violations: but I know of not a single one who has foreclosed due to their borrower’s having opted to rent the property out (assuming all preliminary homebuyer occupancy time provisions had been met).

Hope this helps.


Re: What happens if due on sale is inforced? - Posted by Steve Heller

Posted by Steve Heller on November 25, 1999 at 07:55:11:

You have to explain that there is the ‘risk’ that the lender will call the note but the ‘risk’ is slim.