L/O Vis-a-vis Due On Sale Clause In Mortgage Contract.. I Am New To This
When doing a lease option deal, is the option/lease contract with the seller, in essence, a 'subject to' purchase, and as such can it trigger the due-on-sale clause that is contained in many mortgage contracts, or does the option mean that this is not a sale at all? PLEASE HELP! :-?
An Option is a unilateral Agreement; the Seller is bound to sell, but the Buyer may or may not choose to do so. In that regard, no, it is not a sale. It is not a sub2. California does say that you must disclose just as if you actually sold the house, but other than that, almost all States just treat it as a Lease (which does mean that the investor has to abide by Landlord-Tenant Law). But to answer your question more definitively, yes, a L/O technically calls the note due. For that matter, a Lease of three or more years calls it due as well, and a Lease of five years or more will normally be considered an installment sale by the IRS if they catch it and recharacterize it.
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