Will AITD trigger the due on sale clause - Posted by Dave

Posted by Stewart on July 13, 2003 at 15:50:25:

This brings up an interesting thought. If you were doing sub2 deals (or l/o i guess), keeping the DOSC in mind, wouldn’t this be all the more reason to consider deals without lots of equity? What is the chance the lender would follow through on a foreclosure if DOSC is triggered if the proceeds wouldn’t cover the payoff (expense, etc.)? If all else looks good and you get decent money on the exit could be a good thing to keep in mind. Also, considering the time frame, I would be calling the lender back and explain it will be refinanced (probably) within the next few years, so the idea behind the DOSC would still be applied anyway.

Will AITD trigger the due on sale clause - Posted by Dave

Posted by Dave on July 03, 2003 at 23:58:49:

In Nevada, my lawyer recommends using an AITD so that I may go through nonjudicial foreclosure as opposed to judicial with a CFD. Will the AITD cue off the lender and trigger the DOS clause or am I better off with the CFD where I only have to record a memorandum and not the whole document as with the AITD?

Re: Will AITD trigger the due on sale clause - Posted by JohnBoy

Posted by JohnBoy on July 04, 2003 at 11:19:19:

It does matter whether you sell on CFD, AITD, or even a lease containing an option to buy…they all violate the DOSC.

If you do not allow the buyer to record anything then it is unlikely the lender would find out, unless you where to tell them about it. But if you record anything, including a memorandum, then the lender could find out if they ever checked title on the property. The idea is to not record anything unless YOU are the buyer.

Just because you violate the DOSC does not mean the lender WILL call the loan. It only allows the lender the RIGHT to call the loan IF they “choose” to do so. As long as the payments are made on time and kept current it is unlikely the lender would call the loan. It is not a criminal offense for violating a DOSC. It is only a civil matter where the lender “could” call the loan, if they choose to exercise that right.

If they call the loan, ignore them. Even if they called the loan and you ignore it, it is unlikely they would follow through with taking legal action to enforce it. To enforce a DOSC by calling the loan, the lender will still have to go through the foreclosure process to get the property back if you refused to pay it off over them calling the loan due.

The time frame to successfully foreclose on a property will vary from State to State. States that require a judicial foreclosure typically take the longest to complete. In my State it takes a minimum of 9 - 12 months to foreclose on a property and that is if the foreclosure is uncontested. If you contest it, it can take a lot longer and up to a few years to complete.

Do you know what happens when a lender has a defaulted loan that is not performing? The lender is restricted from loaning 8 times that amount in other loans. That means if you have a $100k loan, the lender is restricted from loaning out $800k in other loans until they can clear up the $100k loan that is in default that is not performing. Do you know how much that will cost the lender from having to hold $800k in money that can’t loan out? A LOT! So why would they take a perfectly good paying loan and cause it to go into default by enforcing the DOSC when all the payments are being made on time and the loan is current? They would be stupid to enforce the DOSC in this case. However, if the payments are late or not being made, then they will call the loan and enforce the DOSC. So always make sure the payments are made on time and the loan remains current. Then it is unlikely they will enforce a DOSC.

But even if they did enforce it. If you live in a State where a foreclosure can take a year or two to successfully complete, don’t you think you can get the property sold in that amount of time where the loan would get paid off before the lender can successfully complete the foreclosure? Or you could refinance the property and pay the lender off, if that is something you were willing to do.

Bottom line…the DOSC is something that I don’t worry about.

Your mileage may vary…

Ignoring note - Posted by John Merchant

Posted by John Merchant on July 06, 2003 at 08:58:34:

Ignoring the lender’s call? I’d think this would have a pretty negative impact on the borrower’s credit, as the lender could honestly say the loan was in default.

And how might one explain it so as to better his credit report? "Oh, I just ignored it, and intend to go ahead and pay it as per my (now unilaterally rescinded)original agreement.

I also suspect other prospective lenders would NOT like the looks of this a whole lot…after all, if I had just blandly chosen to ignore the first lender’s “call” why would the 2d lender expect any better from me on a subsequent loan?

Re: Ignoring note - Posted by JohnBoy

Posted by JohnBoy on July 06, 2003 at 09:25:41:

Another point. Let’s say the lender calls the loan. You ignor it and continue to make the payments. If the lender continues to accept the payments after calling the loan, then the lender waives their right of enforcing the DOSC. They had knowledge of the DOSC being violated. Once they have knowledge of this and they still accept the payments, then the lender waives the right of enforcing the DOSC.

They can’t have it both ways.

Re: Ignoring note - Posted by JohnBoy

Posted by JohnBoy on July 06, 2003 at 09:11:23:

I don’t think so. If the lender still accepts the payments then the NOTE is not in default. The MORTGAGE is breached, but if the NOTE is current then the note is not in default.

Now if the lender rejects accepting the payments because of breaching the mortgage by violating the DOSC, then that could create a problem. If the lender follows through and files a foreclosure complaint then that could create a problem as far as the seller’s credit report. But then that is why we always have the seller sign a DISCLOSURE form that informs them of the risk of the lender calling a loan over the DOSC. The disclosure informs the seller the lender “could” call the loan and that they remain responsible for the loan no matter what. We agree to make the payments on time. We don’t guarantee the lender will accept the payments if they find out about the transfer and calls the loan due and follows through on it by filing a foreclosure suit. That is part of the risk the seller accepts. The seller signs a disclosure form acknowledging and accepting that risk up front.