I’ve got a property that I’m about to pick up for 15k cash and it needs 5k in repairs. The property is worth 70k.
Can I;
Is this a possibility ?
It’s possible, but it violates the due on sales clause once the tenant-buyer has the right to occupy the property.
What are you trying to imply? Is it unethical you are saying? Or it’s just the buyer protection law?
It is a violation of the mortgage contract.
I have found over the years when you have a question concerning the right, obligations, and duties of lenders, it is always appropriate to take a look at the statute concerning the issue.
I have listed the section from the due on sale section of the Code (Garn St. Germain Act) below. You will find the section concerning trusts, and it is clear from the reading of the section, that if the owner of the trust kept a beneficial interest in the trust when it was transferred, then the loan cannot be called due. However, if the owner of the trust did not do so, then the loan can be called due.
• United States Code
o TITLE 12 - BANKS AND BANKING
CHAPTER 13 - NATIONAL HOUSING
Sec. 1701j-3. Preemption of due-on-sale prohibitions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may NOT exercise its option pursuant to a due-on-sale clause upon -
(1) the creation of a lien or other encumbrance subordinate to
the lender’s security instrument which does not relate to a
transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for
household appliances;
(3) a transfer by devise, descent, or operation of law on the
death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less
not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a
borrower;
(6) a transfer where the spouse or children of the borrower
become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of
marriage, legal separation agreement, or from an incidental
property settlement agreement, by which the spouse of the
borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations
prescribed by the Federal Home Loan Bank Board.
Hopefully this will be of assistance to you and others that may have the same problem.
Thomas K. Standen
Equity Holding Corp.
Note Servicing Center
The Office of the Law Revision Counsel of the U.S. House of representatives prepares and publishes the United States Code pursuant to section 285b of title 2 of the Code. The Code is a consolidation and codification by subject matter of the general and permanent laws of the United States. The Code does not include regulations issued by executive branch agencies, decisions of the Federal courts, treaties, or laws enacted by State or local governments. Regulations issued by executive branch agencies are available in the Code of Federal Regulations. Proposed and recently adopted regulations may be found in the Federal Register. Certain titles of the Code have been enacted into positive law, and pursuant to section 204 of title 1 of the Code, the text of those titles is legal evidence of the law contained in those titles. The other titles of the Code are prima facie evidence of the laws contained in those titles. Only the following titles of the Code have been enacted into positive law: 1, 3, 4, 5, ______ 9, 10, 11, _____13, 14, ____ 17, 18, __________ 23, ________ 28, ______ 31, 32, ____ 35, 36, 37, 38, 39, 40, ______ 44, _____ 46, and 49. Titles 1 through 50 Appendix, Tables I-VI, and the Table of Popular Names are based on the 2006 edition (January 3, 2007) of the Code. The Organic Laws are based on the 2006 edition (January 3, 2007) of the Code. Each section of the Code database contains a date in the top-right corner indicating that laws enacted as of that date and affecting that section are included in the text of that section. When a search is made for a specific section of the Code, as opposed to a search for certain words appearing in the Code, the hit list will include an “Update” item listing any amendments not already reflected in the text of that section. The 2006 edition contains the laws enacted through the 109th Congress (ending January 3, 2007, the last law of which was signed January 15, 2007).
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It is clear from the text that any transfer in the right to occupy the property is excluded. Further, the Office of Thrift Supervision, who is the regulatory agency for the due on sales clause, has taken the position that the law only applies to owner occupied properties.
Please note the in my response the information contained at the bottom. If you read this carefully, the section dealing with those chapters which have been enacted in law do not include the one dealing with Garn St. Germaine.
The Office of Thrift Supervision in this instance is only advisory and not the actual law. The law enacted by Congres is controlling in this matter.
A judge is more likely to listen to a regulatory agency for an interpretation of the law it was tasked to enforce than to a party in a suit. That is the reality of a courtroom. Another reality is that judges will twist a law in order to reach the outcome they want. Laws and congressional intent is irrelevant when they conflict with a judge’s opinion.
[quote author=Standen link=topic=44583.msg214720#msg214720 date=1254931251]
Only the following titles of the Code have been enacted into positive law: 1, 3, 4, 5, ______ 9, 10, 11, _____13, 14, ____ 17, 18, __________ 23, ________ 28, ______ 31, 32, ____ 35, 36, 37, 38, 39, 40, ______ 44, _____ 46, and 49.
As shown in the above quote, TITLE 12, which falls between TITLE 11 and 13 above, has not been enacted into positive law. Ergo the blank line between 11 and 13 above.
Therefore, any discussion concerning transfers of any kind into trusts of any kind, regardless of whether or not the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property, serves no practical significance since there is no enacted federal law to support such an argument, much less a defense if taken to task in federal court.
My apologies for mixing my reply with the quoted text (above).