Due On Acceleration Clauses - Posted by Mike in WI

Posted by doug on July 10, 2001 at 17:37:06:

What if the loan is insured by FHA? Doesn’t the bank have to obey the FHA guidlines or suffer the consequences??? I can’t believe the govt would guarantee such a loan where anyone can come along and just p/u the payments. Just curious?

Due On Acceleration Clauses - Posted by Mike in WI

Posted by Mike in WI on July 06, 2001 at 11:59:28:

QUESTION #1: Mr. Sheets’ course is founded primarily on “assumable” financing which as I understand it, became extinct around 1976 or so, which means that by 2006 there won’t be any more “assumable” mortgages to take over since 30 years is the maximum mortgage length. Also, it would be rare for someone today to default and get terribly desperate with only 5 years to go on a 30 year mortgage. So what should I really be going after out there in the marketplace? Are we pretty much limited to “free and clear” properties? Flipping?

I really like his techniques and I believe they worked really well years ago before the government put up a ton of legal restrictions in the mid 80’s, but what do we realistically concentrate on now in 2001? I’m not trying to be cynical, but I really want to know what others are doing in this situation.

QUESTION #2: A “due on sale” clause is almost universal in mortgages from banks now and many hard money lenders are doing the same thing. I wanted to look at Lease/Options, but again, if you do that you are taking “equitable title” to the property (even Carlton says this in his course). And a bank will accelerate a loan if “equitable or legal title has passed”. So now what? If we do a Lease/Option technique, our seller gets hit with a demand from the bank for full payment of their loan balance. I don’t see the seller going into a deal that will cause them that kind of pain.

Am I all wet on this? I sure hope so! I would be very happy if someone out there would show me that I’m wrong about these worries. I really want to become successful with this course and perhaps I’m just not finding the secret to getting past these restrictions. Please help. :slight_smile:

Note: I have purchased Carlton’s course TWICE. I have the old purple version from the 1980s and the green version from the 1990s. I do not have his newest blue version.

Thank you for your time,

~~ Mike ~~

Re: Due On Acceleration Clauses - Posted by JohnBoy

Posted by JohnBoy on July 06, 2001 at 12:58:29:

There are still assumable loans out there being written today. The only problem is you have to qualify to assume them. Adj rate loans don’t have DOS clauses in them. Those that do, you can still assume. You can assume any loan regardless of the DOS clause. Also, just because you violate the the DOS doesn’t mean a lender WILL call the loan due. It only means the lender has the OPTION of calling the loan due. If the payments are being made on time then it is unlikely that the lender would call the loan due. Why would they call a perfectly good performing loan due, only to cause the buyer to stop making the payments, forcing the lender to have to foreclose if the buyer doesn’t pay them off upon demand, and end up with the buyer destroying the property and living in it for up to 1 - 2 years without making the payments, only to end up with a bad loan on their books and get back a property they risk at selling for a loss? Not likely, unless the payments are late then they may call the loan due, or if the loan was at a low interest rate and current rates were way up, they might call the loan due so they can lend that money out at a higher rate. That might justify the costs of going through a foreclosure.

If they did call the loan, you could refinance to pay them off. If you couldn’t qualify for refinancing, do you think you could sell the property to someone that can get a loan and pay the lender off long before they could get the property back through a foreclosure?

Also look into taking existing loans over “subject to” in order to get around the lender from finding out about the sale of the property.

Remember, it’s not a CRIMINAL OFFENSE to violate the DOS clause in a mortgage. It’s only a breach of the mortgage agreement which would be a civil matter where the lender could call the loan due for breaching the mortgage agreement. Key word, the lender “could” call the loan due, they don’t “have” to call the loan. They have the “option” to do so IF they were to find out about it!

Run a search on “subject to” to find more info on how to get around the DOS clause and help prevent the lender from ever finding out about it.