I have a property the seller owes $105k with a value of approx $150k He is behind in payments for 3 mo. Can I make it current and have him deed it to me with out the due on sale clause being called? I think this is the quickest way to obtain the property. All thoughts appreciated.
:help
The bank has the right to call the loan. Will they? How’s your crystal ball?
I think there is more risk when rates are going up. It’s to the bank’s advantage to call low interest loans when rates are much higher.
Right now, the banks are really busy with foreclosures, so they are less likely to call a loan where the payments are being made.
But there is no guarantee. They can call the loan if they want to.
Even if they do call it due it’s not like you have to come up with the money tomorrow. They will give you 30 days or so to obtain new financing. But like tater said, I wouldn’t worry too much about it. The LAST thing that lenders want nowadays is ANOTHER non-performing loan.
What’s your exit strategy for the property?
Has anyone ever had a lender call the due on sale clause?No.
You can always drop it into a land trust which is a way to get around the due on sale clause.
clallen,
Glad to meet you.
Ask the Attorney Generals in North Carolina and Ohio, to name a few about dropping a Subject To deal in a Land Trust to hide ownership.
Better yet find some investors who did it this way and see what the fines and penalties were when the AG said “come see me”.
No, I don’t know anyone who had the loan called due, heard a few stories, but they proved false.
John $Cash$ Locke
$Cash$,
The question is, what were the circumstances? It usually takes a couple of investors doing unethical business to draw this type of attention so I am sure that just dropping them into a Land Trust was not what created the problems. I could be wrong but I would be surprised.
txss,
Glad to meet you.
Here is a link to an Article I wrote after speaking with a representative of the Attorney Generals office.
http://www.reiclub.com/articles/nc-commission-answers
In several conversations with the powers that be in North Carolina, it only takes one unhappy seller to make a report to the AG’s office for any reason good or bad, even if the investor has done nothing wrong, the AG’s office will follow through.
As you can read for yourself, if the deal is in a Trust there is a problem.
So surprise!
John $Cash$ Locke
I have seen it only once. It was a bankruptcy where the property was held in a land trust. The bank got access to the trust document and learned the beneficial interest was changed. They promptly called the loan.
In regards to the initial question, I have never heard from any sub2 investor that a lender has called the due on sale clause. They don’t concern themselves with who is making the payment just that the payment is being made. Snap the deal up quickly or someone else may beat you to it.
John as much as you do subject to’s I am surprised you have never heard of any called due.
I have, and a friend of mine has. We are both active investors.
In my case I have had two that were attempted and one we had to payoff.
I can only speak on mine because I actually know the facts. The problem occurred on both of them because the Seller attemped to get new loans and they were told that they had to pay off the loans.
In both cases it was after a couple of years. Both parties were very aggressive and kept kicking the sleeping dog.
One I made go away, the other one we paid off.(Chase Bank). They had a servicing arm that was very difficult to get past. At least I wasn’t smart enough to stop them.
I cant imagine I am the only one this has happened to, since it seems as the natural course of events that after paying “on time” for a couple of years and the sellers realizing that they now have good enough credit, that they apply for a loan only to find out the old loan is still on the books and their ratios are out of whack. Now they don’t qualify. Wouldnt you raise hell with the old lender. You can bet your bottom dollar(Bob Wills song, with a good story behind this saying) that most people would.
Also John, I read your link about the Land Trust issue and I am not clear about how putting a subject to in a land trust had anything to do with your link. It appeared that you were taking the concealment angle, but there are other good reasons to use a land trust besides concealment. I personally would like to know exactly how this is a problem. Maybe you could be more specific.
There is a saying that goes, it’s not what you know, it’s what you know that just is’nt so. The funny thing is no one is really sure who originated it. Some say Will Rogers, others think Sachel Paige. Oh well I guess this saying applies here also.
fasthomebuyer,
Glad to meet you.
You should not be surprised at all that I have never heard of a loan being called, because as I said I have, but the last time I checked the address someone posted on this board there was no evidence of the loan being called.
This reminds me of my Marine Corps boot camp days when the Drill Instructor said “Smoke Um if you got Um,” which is how I sum up Land Trusts if you feel the need to use one by all means light up.
When my Article was written it was about the same time a Lady Subject To investor was brought before the North Carolina’s Attorney General’s office for using a Land Trust on her Subject To deals. As I remember there were other course writers involved in seeing the outcome of this situation. Bottom line she was fined and had to return the properties to the original sellers.
Recently on this board another investor form North Carolina said he was having a problem with the AG’s office over using Land Trust in Subject To investing. I PM’d him gave him my phone number aad said if I can advise you please call me. He did and relayed my information to his attorney. From what I understand in his case he was instructed not to do anymore deals using a Land Trust when investing using the Subject To method. These are a matter of public record and if you contact the AG’s office I am sure they will get very specific with you about using a Land Trust in North Carolina.
I have always advised my sellers to call me if they are interested in a obtaining a new loan while theirs is still in place to help them continue eliminating their problem, as I am helping them with using the Subject To method. There are enough Mortgage Brokers that understand the Subject To method of investing and normally only requires evidence of the Deed being transferred and the loan is now being paid by the new owner.
Basically it is no different than the owner of a property leasing out their property, which counts toward the debt to income ratio when purchasing a new house as does showing the property deed being transferred. Plus I put a date my buyer must refinance the property by so the loan is not going on for a long period of time and I work with my buyer and a Mortgage Broker to make sure this happens.
As far as my response is concerned, I said I have not seen documented evidence of a loan being called, only heard stories and a poster responded “drop it in a Land Trust”, which as we know is not some magical blanket when thrown over a Subject To deal makes it invisible. Basically your paperwork when doing any Creative Investing is of the utmost importance and must comply with State Statutes in the state you are investing in.
There are two course writers I know personally who are well versed in using Land Trusts, Bill Gatten and Bill Bronchick, it would be my recommendation to any investor contemplating using a Land Trust to contact these gentlemen.
Imagine this you and you friend are the only ones that have a loan called and I have often thought there should be a Creative Investing Hall of Fame, you and your friend can have the section entitled “Loan Called”.
John $Cash$ Locke
$Cash$ - thanks for your feedback.
I am a bit confused though, you refer to Bill Bronchick on using Land Trusts. From what I have seen, he has written many articles stating he recommends the process ( http://www.reiclub.com/articles/no-due-on-sale-jail ). I completly understand its all about what risk you (as the individual investor) are willing to take. However, as long as you fullfill your obligations of disclosing to the seller that you are not paying off the loan at the time of the S2 contract and that you notify the lender in some form or fashion, you have met the legal obligations. I dont really see any issues with it in my opinion. There are bad investors out there doing some unethical things and those people should be prosecuted however a Land Trust is a legal tool that can/should be used. I am not a lawyer, I’m sure you can tell :biggrin so maybe I am being naive. I am curious on your take on Bill’s article/stance. Keep in mind, I dont do business in NC.
Back to the original question SALSADUNES - I personaly have never heard of a lender calling a due on sale. Why do I think this has not occured? If the loan is being paid, the lender could care less as to who is paying the bill. There are many ways to show a potential new lender for the homeowner that the existing mortgage obligation is taken care of. Even on a Lease Option they will get at least 75% credit. If you are willing to supply your sellers new lender documentation to show you are taking full financial responsibility for the mortage, taxes, insurance, HOA, etc., they should give the seller credit. Someone stating they “cant get financing” is not likely unless their credit was already in very terrible shape.
My 2 cents!
txss,
Bill’s article is well written and explains the use of a Land Trust in a Subject To deal.
My point is that unless you check the State Statutes of the state you are investing in, there is no one size fits all when it comes to creative investing from state to state.
When I encounter an area that is Grey, I will speak up so that others hopefully may benefit from what has happened to other investors in certain scenarios. Never automatically assume that an investor has done something unethical because they are called in front of the Attorney General, sellers or buyers that become disgruntled for any reason can file a complaint and the investor must show evidence they are acting within the State Statues of the state they are investing in, to stay out of harms way.
John $Cash$ Locke