Due on Sale

Foreclosures, Short Sales, Tax Foreclosures
1

Does anyone have any idea how often a lender will act on the DoS when you take a home subject to? I have heard that it is rare.

Thanks!
Mike

2

How are they going to find out?

3

<<Does anyone have any idea how often a lender will act on the DoS when you take a home subject to? I have heard that it is rare.>>

As long as the loan is performing, rarely, if ever.

<<How are they going to find out?>>

The most usual way is the change in the insurance coverage for the property naming the new ‘owner’ as the co-beneficiary…they may also catch the fact that the checks are now coming from another individual, but most data entry folks are not that perceptive…

Keith

4

Yes, typically when the insured changes. At a certain company I am familiar with the insurance handling is outsourced. When a policy comes in with change to insured the vendor notifies the default area and letters start going out. Not sure if they push the envelope all the way to foreclosure, need to find out.

5

In addition to insurance changes there are two other ways they are notified.

  1. Internal pool quality control audits (also a very small percentage of loans are picked here.)
  2. Transfer of servicing audits (extremely rare because usually the servicing rights are withheld only the disbursement and collection activity is outsourced.) More of an issue, if SRP is taken and servicing portfolio is completely sold. This is usually withing the first 6 months of the origination.

The most important point of discovery is when the loan is not performing.

With regards to how far a lender will go? In 15+ years of mortgage banking, I have never seen one…Can it happen? Sure…

Be sure to check into the Depository institution Act of 1982 aka Gar-St. Germain Act, as transfer to title to certain entities like intervivos trust and certain types of land trust is an allowable act which will avoid the triggering of the DOS clause.

Additionally a few other good areas for you to review are the Crime Control Act of 1990, and ofcourse our new 2001 Patriots Act (the sprawling 342 page document) that now holds lending and financial institutions to many new requirements with regards to consumers.