Subject to's
I read the article regarding the due on sale clause. I have looked into the idea of transferring the property into a land trust, so that the mortgage co does not notice. According to a lawyer I talked to, the transferring of the property into a land trust can trigger the due on sale clause. In your many years of buying and selling investment properties, how many properties have you purchased "subject to" and how many times have the mortgage co's accellerated the loan?
Thank you
Derek
Derek,
Glad to meet you.
Good question for your first post, I can understand why this would be a concern for someone interested in Subject To investing, so let me give you my scoreboard.
Properties bought & sold: 500+
Due on Sale envoked: 0
There are precautions an investor should take when doing Subject To investing. Can a DOS clause be envoked by a lender yes. Are there things that can be done to minimize this from ever happening yes.
I hope this helps. Maybe some one will say it happened to them, but if did would they please also state the circumstances surrounding how it happened.
Welcome on board this board, we the posters at TCI are here to answer questions and share our knowledge.
John $Cash$ Locke
Thank you for your reply. What can be done to lower the chances of the DOS clause being invoked? I would think that prompt payment would be good, but what else?
Also, when you do "subject-to's" do you go through title companies, or do you research the title yourself and then get the seller to sign a warranty deed? (I live in MN.)
Thank you for your help
Derek
to help prevent the DOS being called, use a loan servicing company to help ensure prompt payment.....try and find one that knows the ins and outs of contract for deed......also, when you do a sub-to the deed stays in the sellers name so you can continue making payments to the mortgage company
DEREK, Welcome to TCI!
To answer your question:
How to Avoid DOS and What steps you should take got to my previous posts entitled Equity Holding Trust (tm).
See any of my related articles for more Tips.
or
Just look up the 'Garn St. Germain Act' on a legal Website to get the meat and potatoes on USING LAND TRUST to avoid Violation of DOS!
The Act says that the original Mortgage Borrower should be clearly identified as a BENEFICIARY and the Trust be for (inter-vivos) asset-protection purposes.
Also most mortgage clauses contain the phrase that should the borrower transfer their beneficial interest without notice this could trigger the DOS.
IMHO the Garn St. Germain gives defacto(nice legal word) for inplace notification to the lender.
NO CHALLENGES for DOS Since 1984,(the last time a Lender challenged the Garn St. Germain Act, (twice since inactment) and the LENDERS Wound up being 'TWO TIME LOSERS.'
How you Set up the Land Trust is VERY IMPORTANT---Get GOOD Information +SPECIAL NOTE: RUN IT BY an ATTORNEY who SPECIALIZES in Land Trusts, leave me contact or an Email address for you, or goto: www.LandTrust.net for more information!
Hope this Helps!
DERRICK ALI
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Quote:
On 2002-10-18 10:03, way_motivated wrote:
to help prevent the DOS being called, use a loan servicing company to help ensure prompt payment.....try and find one that knows the ins and outs of contract for deed......also, when you do a sub-to the deed stays in the sellers name so you can continue making payments to the mortgage company
Thank you so much! I have never heard of a loan servicing company. What exactly do they do? I could make sure that the checks that I write get to them on time...
Also, I have a few questions regarding: "when you do a sub-to the deed stays in the sellers name so you can continue making payments to the mortgage company." If the deed stays in the sellers name, then what conveys the title to you? I thought that one would have to get a warranty deed signed and then record it (so that the seller couldn't resell his property to someone else. I was told that when the warranty deed is filed at the county, that is where the mortgage co finds out about the sale...
Thank you all so very much. This is all new to me and I would like to do it right...
Derek
Derek,
Subject To means the financing on the property stays in the sellers name.
You get the deed to the property, way-motivated just got a little over motivated on his post.
I did an article about Subject To investing for the beginner here at TCI it also talks about the Loan Servicing Company. Please take time to review it, I think it will help.
John $Cash$ Locke
I know 2 people that the loan has been called due. one was because the seller blabbed to the lender and the other was because the lender had a bad day I guess. I would agree with $Cash$, on this. Lenders like to get paid. But don't kid yourself that it won't happen.
Using a land trust will only disguise what did happen. Its like putting something in a brown paper bag. To find out whats happen you have to look inside. But its just a shield.
sorry about the mixup, damn this motivation!!!!! ......
John,
I appreciate all the feedback. I have reread your article on 'subject-to's.' In MN, the warranty deed transfers property. When you take a property 'subject-to', it would make sense that you would need to get the warranty deed signed. You then would have to file that deed so that the seller could not re-sell the home to someone else. Other than transferring it into a land trust, what else could be done to prevent and/ or lessen the chances of the DOS clause?
Once again, thank you very much.
way_motivated,
I think you were thinking of the 'Trust Deed' or 'Loan' staying in the sellers name.
John $Cash$ Locke
Yes, the loan would stay in the seller's name, but the title would transfer to the buyer when the loan was paid off. As I understand it, to have the title transferred, you need to file the warranty deed with the county, if you don't it isn't official.... I am sorry to keep pounding on this, but I have been told that you need to file the warrranty deed and if you do, the mortgage co could/ would find out about the title being transferred. Is this correct?
Thanks!!!
also ,if the seller retains the loan , what the heck motivates the seller to sell then ? i know the loan is now supposedly being paid but is the seller then protected from default leagally and also what if the new buyer [.ie semi . tenant ]does extreme damage to the property and then bails after 12 months or more . ie will his down payment cover ? the cost of repair and what happens after 3 years if the new buyer cannot re finance or sell but the property is damaged .
I know tis is an old post but the last questions seem intresting can anyone shed some light?
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Tony,
A very inexpensive insurance policy that my buyers are obligated contractually to have pays for damage and covers personal liabilty.
The worst thing that ever happended to me personally was a buyer flushed rags down the toilet. Called Roto Rooter end of the toilet problem.
John $Cash$ Locke