Cover your assets. The idea is to tell the sellers that there is a due on sale clause, that they know it and the consequences. By them signing it it should be more difficult for them to claim you took advantage of them because you didn’t tell them. The folks that transfer 100% of the land trust interest use this method. Works okay on motivated sellers but what if they are a bit more cautious or less motivated. They also do the same to a potenial buyer. I’m going to take your money but if it is called due you’re out of luck and I’m not giving it back.
A few Sub2 questions JimFL, sub2 practitioners? - Posted by Pat IN
Posted by Pat IN on February 01, 2002 at 07:21:29:
First, I’d like to disclose that I’m not a sub2 guy, yet. Also, I know I probably need to get a good sub2 course in the future, however, I have had a few nagging questions (pitfalls of buying sub2)? about aquiring properties “subject to”?
Here they are:
When buying sub2, what happens if after you (buyer) “Get The Deed,” the seller, who still has the loan in their name, files bank ruptcy? You now have the deed, so technically you are the owner, however, what happens to the underlying loan, how will this affect you, the (buyers) position “who has the deed”?
What documents do you provide to a lender or (mortgage broker) when ready to refinance, or have your tenant/buyer refinance (once they qualify)?
What would happen if you finally aquire a property “subject to” and you have your seller sign a CYA letter, disclosing that their loan has a “due on sale” clause in it, and then for some reason, the loan is called due? Your tenant/buyer can’t qualify to refinance immediately, you (buyer) in the middle can’t qualify either, nor do you (buyer) have any cash reserves to help get you through, so the loan is called, and because there are no funds to satisfy this debt, the lender forecloses? Can the original seller, sue you (buyer) for a performance issue (relative to your agreement to buy sub2)? even though you had the seller sign CYA letter? Will this hold up in court?
Posted by Donna S on February 02, 2002 at 15:48:46:
probably get a title report and file a foreclosure suit against all who on title. We had a client who came to us for a refi. He was being foreclosed on also as the seller signed the deed to him. A word of caution: ask a good RE attorney about the “what ifs”.
I have not had it happen so I can not speak from a unique experience. I have had experience with bankruptcy with owner financed notes. I do not believe that as long as the payments are being made that a lender will care. There is always the possibility so unless someone can site a specific case in which the loan was current it is speculation. I operate a little differently by using a co-beneficiary trust. I feel that it does offer some protection. But since I haven’t had it happen I can’t tell you from experience.
I use a EHT and a lease. They usually want to see the money trail of what was put down and what was paid monthly. A lot will depend on the mortgage company, the title company, and the strength of the buyer.
Again I don’t use a CYA and I don’t like them. It would not be in your interest to be in court trying yo defend it. I speculate that it would be a case by case basis on its strength. Of course it is better than nothing. People can sue anyone for any reason. But it costs money to do so. I know Bronchick says he does like mediation or arbitration agreements but he doesn’t have to pay the legal bill if it comes to that. The best advice is to avoid default and the odds are greatly in your favor that there will not be problems. That is unless you use Arthur Anderson to do your accounting.