The DOS (due on sale clause)

I have seen many posts talking about the due on sale clause, especially of late. Some act like it is a major concern, or a crime, or a big thing to worry about. I would like to know why people are so worked up about something that rarely happens. I would think there may be some things to check into, such as HELOC’s, or certain government loans, or maybe even certain lenders, but as a general rule, I think the DOS is a non issue. Your due dilligence will answer any concerns.

I seriously wonder why people are so concerned about the due on sale clause. It is so unlikely to be called that it is really a non issue. As long as you do your due dilligence, and ask questions, the DOS is a non issue. I have never known anyone that has had one called, nor have I ever read about one. If someone has and can prove it, I sure would like to know.

Are there other LEGIT concerns about it? The only other possible reason I could see is if the house had a lot of equity, and even then, I’m not sure it is a concern. With so many foreclosures…and with more and more every day, I just can’t see banks wanting to create problems when there are none. And also, most banks never know about it anyways, as 3rd party companies process payments. And those people could care less about it.

Any comments and educational opinions are welcome and appreciated.


A few days ago I received a call and I will relate a true strory about what this call was about.

I received a call from a lady introducing herself as a Mortgage Banker and the first thing that popped into my mind she was calling to sell her services.

The next thing I heard was, “you were recommened by another Mortgage Banker who said you might be able to help me.”

“I have a young lady 23 years old who is 35 days behind on her payments and I explained to her that we were really unable to help her. Then I was thinking about my own daughter who is the same age and how I help her manage her finances, because these credit card companies just upped her card to $7,500 and for a person this young that is alot of money to manage without a lot of experience.”

I said do you understand what Subject To investing is about? She replied, “yes it was explained by the Banker from CountryWide who called me about you.”

This is not the first time a lender has called me asking for assistance in helping a customer of theirs.

Now isn’t CountryWide one of the ones every fears will call a loan?

Keep it professionall and get known as the person who can get it done to help others.

John $Cash$ Locke

Here’s one…I talked to a highly motivated seller a few days ago. I explained how I would buy her property sub to and explained the due on sale clause, she said she spoke to her mortgage company about signing her deed back to them, she also told them about me. They told her to go with me…

Its been a non-issue in recent years because the current interest rates are lower than the rate of return on previously issued loans. Why call in a loan that is performing and producing higher income than can be created with a new loan?

I think you will see that change. We are in an inverted yield curve (long term rates are lower than short term). That’s not going to last. Either short term rates have to come down (unlikely) or long term have to go up.

the companies that are holding that 5.25% 30 year fixed paper will be very anxious to retire it when fixed rates are 7.5% They rank their portfolios not on a loan-by-loan basis, but the return on the entire portfolio. Retiring low interest rate loans will increase the portfolio yield.

Thaillanddave, I completely disagree with that. There is a big difference between this time frame and the past…banks are overloaded with foreclosures already, and it’s only going to get worse. Unless rates skyrocket, the banks aren’t going to call loans due. Two percent is not worth their time. The only way it might be is if there is a ton of equity, AND a large rate hike.

Banks may threaten to call them due, hoping to scare people, but that’s as far as it will go. They aren’t going to risk retiring low interest loans unless their is a significant amount of equity, and even then, they still might not do it. They already are spending millions of dollars on attorney fees for legit foreclosures, and aren’t about to make a good loan bad.

And one other thing, banks don’t even know about a lot of sub 2 deals because 3rd parties are handling the mortgage collections.

The DOS os a non issue 99% of the time. The other 1% will be uncovered when you do your due dilligence.

I have heard of a couple of recent cases of the DOSC being invoked recently but they are definitely rare… and I take the old Alred E. Newman stance, “What me, worry?”. It’s called “land trust immunity”.


Here is what I heard. Immunity is exemption from prosecution. When the law exempts someone from prosecution it is for someone who has knowledge of possible criminal activity and may be personally culpable in exchange for giving sufficient information to the police or to a grand jury.

I would rather keep my dealings above board, not hide anything and out of the sights of Attorney General offices for Fraud and Deceptive Practices.

John $Cash$ Locke

Don’t play word games, John. You use your narrow definition to try to infuse legitimacy to your own methods. Immunity is “exemption from normal penalties or liabilities”, it is also “exemption from normal responsibilities or duties”. I don’t have to hide anything and never do – remember Garn-St.Germain? That’s why I don’t have to worry. Show me the law that provides your method the same protection. Give us all a break. I realize it’s Sunday but get off your pulpit.

I like your way of thinking. What do you do about the insurance? Do you keep the owners insurance in place and get your own or do you just get rid of the owners and put yours in place?


Glad to meet you.

I have the owners change the policy to a Landlords Policy and have my entity or my property manager named as additionally insured.

Or you could just carry a second policy and include the payments in your buyers payments to you.

It boils down to what different insurance companies require, it is best is to find an insurance agent to work with and give him your business.

I also require my buyer to have “Contents Insurance” for their personal items and carry a Liabilty Policy with the same value as the house. We are really taking pennies here, but wise to do.

John $Cash$ Locke

Thanks John, That sounds good. When you first started, I’m assuming you closed with a title co/atty. Did you ever get one that would refuse to do it? I understand the concept of “kitchen table closings” Is it a matter of just recording the deed and transfering the tax?


Once the seller has convinced me to purchase their property on my terms, then it is just a matter of having them sign the Buy Offer and Acceptance Agreement and fill out a Sellers Information Sheet in the house and that is all they sign at this time.

Now after leave I do a thorough due diligence and have a preliminary title report done, checking for any liens or encumbrances, once I am statisfied that everthing is what was agreed to, then I set up a closing date and where we meet at.

I use my bank, which has a Notary to witness the signing and finalize the documention to transfer title (The Deed) to my entity. Then I record the deed and when the buyers move out I give them U-Haul money to help them get started again.

“Did you ever get one that would refuse to do it?” Since I do not close at a title company this has not come up, I have had sellers request closing at their attorney’s office and this also has not been a problem as my paperwork is state specific and complies with the state statutes.

John $Cash$ Locke


I know you try to keep everything above board to avoid the DOSC while using your “subject to” financing method and you have been successful doing it. I am sure you also try to comply with state statutes. The fact is, however, by definition your “subject to” does violate the DOSC, whether or not it will ever be called. There are no two ways about it.

I am simply saying that by doing my “subject to” in a land trust, I am not only fully protected by Federal law (Garn-St.Germain) and exempt from the DOSC, but most states have individual statutes reinforcing that law providing double protection for the land trust method. I’ll give an example:

Michigan, for instance:

445.1626 - Circumstances under which enforcement of the DOSC is prohibited.

Sec. 6.
A lender shall not enforce a due-on-sale clause in a residential real property loan in any circumstances under which enforcement is prohibited under section 341(d) of the Garn-St. Germain depository institutions act of 1982, 12 U.S.C. 1701j-3, as currently in force.

You did an excellent job of avoiding my question. Exactly what law is it that protects your “subject to” from a DOSC violation? I’m not trying to put you on the spot. I just don’t understand your statement that you are not trying to hide anything with the inference that I do. I don’t have to – EVER. The law is on my side.

Again, what law is it that provides protection for Your “subject to” method, John?

Da Wiz

Thank you very much for the information and fast replies. I took you advice and I’m reading Zig’s book “Secrets of Closing the Sale”


I know it is a pain for others to re-read you posts, but if I do not copy them they are “Subject To” change as you did above when you missed part of the cut and paste process.

When you “STAND TO POST” and quit avoiding answering my questions, then I will give you the answer you seek. I have asked these questions several times without response from you so you are the one avoiding anwering questions.

  1. How many deals can you prove you have done? The reason for this question is that it is one thing to have experience when answering someones questions and having to cut and paste the answers.

  2. What dollar amount is the Surety Bond your Trustee has to handle a Billion Dollars worth of properties, so should something happen, these folks who put their trust in him will be covered.

  3. Was your Trustee who has law enforcement experience and trained at the FBI academy an FBI agent or a cop who received training at the academy as many other cops do?

John $Cash$ Locke

Gary, enough about the DOS fear you seem to be tossing around. THE DUE ON SALES CLAUSE IS A NON ISSUE. You have your reasons for using the NARS trust. However, the DOS clause issue is NOT a valid reason to take title in a trust. We hear WAY too much about something that is a non issue in 99.99% of deals, if not higher.

I am tired of hearing about you using the due on sale clause as a valid reason to use a trust. It is not even close to a good enough reason. It also scares people into thinking the DOS clause is a big deal, when it isn’t.

As long as you do your due dilligence, the due on sale clause is a NON ISSUE.

WHO CARES is it is avoided? WHO CARES if there is a law about avoiding the DOS? If there was a reason to be concerned, it might be different. But there is NO REASON to be worried about the DOS clause. It gets called so rarely, I can’t fathom why people are talking about it, and worried about it. It is a NON ISSUE.

You’ve got a great sub-2 deal that all parties are pleased with, seller, you and optionee. There’s good equity and the property’s in a hot, appreciating market; Boise, ID for instance. Interest rates are rising, but you’ve got 3 years left before the ARM adjusts (5/1 ARM), great deal for you since you’ve got a 2 year exit strategy planned. All is well.
The lender decides it would be better served by loaning that money at a higher interest rate. Oh, there’s equity and appreciation. Lender to himself: “Hmmmm, How can we get our hands on that property?” Well, now…( I’ll leave you to your own ruminations here)
Nope, it ain’t your problem Bobo…it’s the seller who has to cough up the payoff within 90 days. Your only problem is with your tenant/optionee…(again, ruminate amongst yourselves…topic is “Lawsuit and bye-bye Bobo’s unprotected assets”)
Would this scenario happen in a soft market? NO. Could it happen in a hot market? YES. Have I seen it happen in a hot market? YES…Grand Junction, Colorado.
I posted the story here on the board once.

PS. I’ve posted before about how some institutions, specifically Countrywide, don’t seem to mind REO’s in certain markets. This past week, I ran across two different scenarios involving CW; one in which they bent over backwards to avoid taking the home and another in which they’re playing hardball to get the home. All other things being equal, the only difference I can see is the market in which the properties were located.

PPS Being in the mortgage lending industry myself, I agree completely with ThailandDave’s prognosis. You folks would be well advised to listen to what the mortgage brokers have to say; they only do this for a living…

Bobo, I’m not tossing it around, it just happens to the the subject of this thread (in fact, it is YOUR thread) and it is really fun watching you come to the aid of John every time, like Robin to Batman. The answer is there is no law that protects your “subject to” method because it violates the DOSC – period.

I just get tired of JCL throwing out misleading inferences about “hiding” things when the use of a land trust obviates the need to do so.

As to the trustee, he is a retired Area Commander of the CHP, after over 20 years of law enforcement both in command and administrative positions, who received training at the FBI Academy. He holds a lifetime teaching credential, and is one of the founding directors of the California Trust Deed Brokers Association and is a Superior Court appointed Referee and Receiver.

Are you bonded and insured, John? He is for the maximum amout for each individual transaction. As to the number of deals I have done, it’s about 25-30, but we all know that the number of deals makes no difference. It is how the deals are done. You may wax your car 30 times and I might do it once, but if I use the best wax available, that’s all it takes.

Always happy to educate.

Da Wiz

Why does it matter if there is a law to “protect” from the DOS when it is largely a non issue?

The chances of it being actually called and followed through to foreclosure are so remote it’s not worth being brought up. Many people know about the protection trusts give regarding the DOS, but since the chances of it being called are slim to none anyways, why does it matter?

And in reality, trusts do hide the transfer of the beneficial interest, since it is not made public, and not recorded.

And I have a question…I may be mistaken, so enlighten me if I am…I always thought there was something regarding “occupancy” in the Garn St Germain act. Such as the trust being in violation of the DOS if occupancy changes along with the interest. I am not sure about this, but I thought I saw it somewhere. Feel free to correct or amend if it is wrong in part or in whole. I just want this claified for educational purposes. Any explanation or help is appreciated.

Tony, The law states that:

(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;

When I place a property into a trust, I deed it to my Trustee and remain a beneficiary. The Trust makes no reference whatsoever to a transfer of occupancy rights. Mistakes some people make include getting the seller to transfer all of his rights. That is a DOSC violation.

Once placed in trust, I can assign occupancy rights to another beneficiary without violating the DOSC. It is personal property. You can read almost any DOSC clause and it will say that if you do transfer occupancy rights they can invoke the DOSC, but … these words always follow: UNLESS PROHIBITED BY APPLICABLE LAW. (Garn-St.Germain).

If it was violating the DOSC, I doubt that the Calif Dept of Real Estate would approve the NARS Trust program for continuing education for Realtors.

Da Wiz