Due on sale clause
There’s a due on sale clause in a mortgage,
A lot of people think it means that the lender is going to foreclose if you don’t do the right things. The lender is going to call the loan due and payable.
What it means is the lender has the right to call the loan do and payable under that clause.
Do they exercise that right all the time?
Well I’m not a lawyer and this isn’t legal advice. But my favorite attorney says, ” there is no due on sale jail”.
Is there risk involved with subject to and wrap around mortgages? There is risk in everything. There is risk in a lease, there is risk and an option, there is risk in a sale and purchase agreement.
How do we mitigate the risk of a due on sale clause and a mortgage? Make sure you study land trusts
Go here for Land Trusts.
For people not familiar with a land trust, it is a revocable or changeable Trust, used for Asset Protection and use for estate planning.
There are similarities to a revocable living trust.
See Living Trust.
Whenever you change the title without getting permission from the bank, which you do do in a subject to transaction and a wrap around mortgage transaction, you risk the lender invoking right to call alone do through the due on sale clause.
Now as a practical matter, if the loan is being paid on time, if the taxes are being paid on time, if the insurance is being paid on time, this is a performing asset for the bank and they have other things to do besides contacting you about a possible do on sale costs violation.
You have to make a commitment to the subject to strategy or the wrap around mortgage strategy to buy, and get good legal advice about 51 sale clause.
In 25 years, I have yet to have a lender call me and say that the loan is now due and payable.
I think buying on a subject to and buying on a wrap around mortgage is one of the best ways to buy property.
