The guideline is for ALL VA guaranteed loans (don’t know on direct VA loans). I might add again however that if you call different regions you may get different answers…they aren’t necessarily familiar with the intimate details of the Guidebook. If you called a lender I would expect NO familiarity with the Guidebook.
Same thing with FHA. You’ll get wide differences in answers regarding specifics on FHA loans depending on who you talk to within the FHA. The lenders at times have next to NO knowledge at times on the details of FHA guidelines.
As far as VA eligibility goes…a note can offset loan liability for income purposes. However, “entitlement” is a separate issue. A Veteran is “entitled” to a certain maximum loan amount under VA (currently something in excess of $200K). While a note can be used for income purposes, it is NOT used for entitlement purposes. You can have VA loan(s) up to your maximum entitlement, assuming you qualify from an income standpoint.
Contract for deed, is this a legal binding contract? I read somewhere that this is a
good way to get around the due on sale clause when the 1st is not
assumable. The buyer keeps title in his name so as not to alert the
lender, I get possession. This all sounds good but is it legal? And
in the event that the seller has a change of heart a year or two down
the road, is my investment safe?
I am also in the middle of a deal were the seller is taken back a
note. I wanted to put a clause in the note stating I would get first
shot if he was going to sell the note at a discount, is this called
first right of refusal? My lawyer did not know what I was talking about.
This is a great help to beginners like myself, I only hope that some day I can contribute help instead of questions…Thanks
My attorney teases me, asking me why in the world I call him for advice when it seems that I know more than he does ! LOL… I told him where he can buy Bronchick’s courses ! hehehe
Posted by Stacy (AZ) on March 14, 2000 at 16:42:49:
Yes, a CFD is legally binding. Yes, a CFD could trigger the due on sale clause, unless it’s a VA loan. And, if a seller has a change of heart, he is in violation of the contract. however, purchasing on a CFD has some risks, and you should learn about them before you decide to do it. Generally, it’s OK to sell using a CFD, but not so good buying on CFD.
The note clause is called the right of first refusal.
Go to the free article section on the left side of the page and read. This topic has been brought up LOTS of times. Do an archive search for DOS,Due On Sale,Land Trust, PACTrust…
could you expand a little on the +'s and -'s of a contract for deed - Please,
i will have to start learning more about them since i just started visiting owners on expired mls listings, and considering getting either CFD’s or l/o’s
I believe Bronchick’s comment about VA loans was that their guidelines will allow an subject to with a contract for deed. He also pointed out that not all districts are on board. Nor may be the actual lender. The VA is usually only an insurer. The DOS is still there and the appropriate safe guards are still in order.
For more information, I think Bill Bronchick’s site has some information. Or, maybe it was all thrown away when he went to his new design, yesterday. You also could post this question there and get his opinion. www.legalwiz.com
It’s also possible the archives, here, contain more info.
The VA Guidebook specifically mentions contract for deed as being permissible. “Subject to” triggers the DOS. All regions are not equally conversant with the Guidebook…but it’s there.
Posted by Stacy (AZ) on March 15, 2000 at 13:00:39:
Bud, I never heard this before. I must have missed Bronchick’s information regarding “not all districts are on board”. The information I’ve been exposed to didn’t mention any potential problems, including the posts I’ve read on Bronchick’s site. Here’s an excerpt from one of his articles:
“Remember that the due-on-sale is triggered by “transfers” other than a deed. A lease of three years or more, a lease/option of any term, a contract for deed (except on VA-guaranteed loans), moving out of the property within the first year and other transactions also give the lender the option to call the loan due.”
What should I watch out for when buying/selling a VA insured loan via CFD?
I messed up. It was Piper’s comment. As he points out the seller can take the CFD and "get back"eligibility. I still see the problem with the buyer that a lender may still see it as a DOS violation if called to their attention so I would still take protective action.
Hate to keep following you around like this…but you’re not quoting me correctly…I didn’t say the seller “got back” eligibility. What I said (or tried to say) was that a CFD does not violate the due on sale clause on a VA loan according to the VA Guide Book. I’d give you the URL except that they’ve changed it…it’s out there…you can read it for yourself.
“On the strength of that note the seller can apply for a new VA loan with 100% offset against his liability for income purposes.” To me that’s “getting back” his eligibility.
The question still remains as to whether a lender on a VA insured loan would consider that contract for deed a violation regardless of what the Guidebook might say. Or is that guidline only for VA loans originated from a sale of a foreclosed property. Then why would I not want to put it in a land trust like everything else.
