If a seller has a loan for $138,000 with a small bank. Then they want to sell it using seller financing for $140,000. Can that small bank say that the seller can not sell it to the buyer for $140,000 using seller financing? The Title Company is saying they have to check with the bank first, before they will allow the closing.
Get a different title company. The bank could call the loan due if they wish. That is called the Due On Sale Clause found in almost all mortgages today.
:cool i agree get a differant title company and then sell the note and pay off the first //// but sell it for more than the 140 k when 138 k is owed and if you do not get enough put a second on the property
The seller of the property is offering 100% seller financing for $140,000. He owes $138,000 to a small local bank.
You called it fadiz. The Title company said the bank has a “Do on sale” clause that requires their loan to be paid in full before they can sell it. They said the 100% seller financing is out. How will switching Title Companies change anything??? It sounds like the buyer of this property will have to get financing or pay cash. I’ve never heard of this “Do on Sale” clause, has anyone else ever run into this problem??? This would be especially bad if it is in most loans today. It would mean seller financing is out for most properties.
We buy them all the time, some title companies will close them, others won’t. I work with one that could care less as long as they get paid. Usually the larger ones do not allow it, but it changes from one officer to another. In reality, most of them will throw a fit about it, but all you need is one investor friendly one.
Shop around, call various title companies asking them if they close a wrap around and what are their requirements. You could also close through a real estate lawyer and not deal with title companies.
It is not illegal to sell a property that has a “DUE on Sale clause” with owner financing…and it’s not illegal for the lender to call the loan fully due and payable if the terms are violated. It’s a chance you take!
Keith
The due on sale clause has been in pretty much every loan made since about 1987, so if it’s been made since then, it’s there.
As Keith said, it’s not illegal to sale a house via owner terms and NOT pay off the loan, even if it has a DOS clause. It’s also not illegal for the lender to call the note due.
However, that said, many lenders within the last few years have been requiring borrowers to sign an additional document that is filed with the clerk of court that basically says that IF title is transferred, the lender is REQUIRED to be notified. Now the borrower or the buyer may not get into too much trouble by ignoring that doc (yeah, right), but you can bet big $$$ that your closing agent is NOT going to ignor it.
Raj
That is interesting, I did not hear about the notification requirement.
I would like to see an example if this because I have never seen a lender file a stand-alone document of this nature in land records.
The language could be included in the security instrument, so I don’t know why a lender would go this route (separate document).
Do you know how a person would find out if this additional document is filled? Specifically how have you figured it out? Thanks!!!
It will come up in any basic title search.
Raj
In any case, if the title company going to notify the lender due to this paper, close using an attorney or find one that won’t. However, I havent seen such document as of yet.
Believe it or not, your choice. The fact is that the doc does exist, at least in NC (only state I invest). Is it common? Not yet, from what I can tell, but if it’s out there, then it’s likely to become more and more common, especially if sub2’s get any more bad press, the lenders will respond.
As to why it’s a separate doc and not in the security agreement, my guess is that it becomes much harder for the closing agent to ‘miss.’ Additionally, if it’s out there separately, then it comes up in a title search and MUST be followed.
So fadiz, if the doc is there, you likely will NOT find a closing agent/attorney that simply won’t do it, as, at the least, they’ll lose their license by not doing it.
Just FYI guys, good luck.
Raj
When a question is in doubt the answer must be searched out.
Have you tried talking with the lender about the mortgage? In some cases the lenders are ok with some forms of owner financing if you convey the need.
Also as long as all parties understand that a mortgage is placed on the house that may accelerate. Basically your exist startegy will determine if it is worth the risk.
Would you care if a loan has the potential of being called due with the intention of rehabbing then immediate sale?
Most people wouldn’t care, because with a quick flip the house will be long gone before the NOD is filed.
Or do you plan on keeping the property in your name for a long term investment, without thinking about refinancing?
Then maybe you would want to reconsider. My uunderstanding is that as long as all parties understand the dosc, you can seller finance. Most investors don’t close seller financed deals with attorneys anyay. Ever heard of table top closings?
They will go out and get the needed paperwork, pull title, have the owner get the new title insurance in their name, convey the property, record the documents and go on with more business.
Of course there is more to it, but that is a brief summary.
You have received some excellent answers. Probably the safest way to do this is to first place your property into a land trust with the title held by your Trustee. This transfer is exempt from the DOSC. Then, make your buyer a beneficiary of your trust and lease the property to him or her. As long as your lease is not longer than 3 years and does not contain an option to purchase, you are within the legal guidelines.
Your buyer/Lessee will have the right to purchase at fair market value upon termination of the lease. If he chooses not to purchase, the property is sold at FMV with distribution made according to your beneficiary interest.
Because there has been no sale, only a transfer to your Trustee, the Due on Sale Clause does not come into play. I wish you the best.
Good Morning Trustpro,
Could the seller just sell the beneficial interest in the trust ? Still not triggering the DOSC?
No lease needed, and everybody wnz…?
Darin
Hi Darin,
Unless the seller retains at least a 10% beneficiary interest in the trust, it is a violation of the DOSC. The law allows a seller to lease his property and still be exempt from the DOSC as long as it is for less than three years and does not contain an option to buy. Because the seller still retains 10%, no sale has occurred. However, a full transfer of 100% of beneficiary interest is a sale. I hope this is of some assistance to you. Good luck.
p.s. - In today’s market it is doubtful a lender would invoke the DOSC if payments were current.
I wouldn’t worry about the Due on sale clause. If they try it, just ask the lender do they want the house back. They will say no, and keep the mortgage current. But I doubt they will even hassle about the DOSC.
Trustpro,
How does this law hold in states that do not have land trust laws? The reason I ask is because texas does not have land trust law, and the DOSC that I have seen stated “or any interest in the property” is sold. So St Germain act takes over in this case?
EDIT: ok I guess since it is not a sale, it is not a violation, although banks could challenge that.
Thanks, Trustpro,
Darin