Real Estate Investing Blog

Most mortgages today do have a “due on sale” clause .

The term “due-on-sale” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument, if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;

Legal jargon that says plain and simple - a right to call the entire balance of the loan due.

But do they??

Most of the time , NO!

Banks do not want houses back. They want payments and loans in good standing. So, as long as the bank is receiving payments, on time, on their loan, they are most likely to accept these payments rather than take a house back and having to deal with reselling it.

If a bank should call the loan due (the worst case scenario), you will not go to jail.
Just refinance the loan.

But…
The way we (as real estate investors) “buy” a house is to buy it in a land trust (intervivos trust) [more legal jargon]. According to a federal law called the Garn-St Germain Depository Institutions Act of 1982, a lender may not exercise its option pursuant to a “due on sale” clause upon:

“A transfer into an inter-vivos trust in which the borrower is and remains a beneficiary and that does not relate to a transfer of rights of occupancy in the property”. Bingo!! A land trust is an inter-vivos trust. The borrower signs as beneficial interest in the land trust and then (on another form), quietly transfers that beneficial interest to you (or to your entity).

Without going into a long seminar, the borrower also fills out a letter to the lender giving you permission to acquire any information on the loan as “management” of the property.

Til Next time,
Peggy Parks

Peggy is a Licensed R.E. Agent in Georgia

This entry was posted on Tuesday, June 26th, 2007 at 3:37 pm and is filed under How To Buy Properties, Subject To, Property Management, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.