Posted by Erick on October 06, 2004 at 21:32:12:
Specifically…the mortgage will say whether any type of transfer of interest would trigger the due on sale clause. Most 1st as well as 2nd mortgages (which is what a HELoC is) include language that says if a transfer of legal or equitable title should transfer, the lender has the right to call the loan due.
For a land contract, what you are giving the buyer is an equitable title interest in the property. You retain legal title but they get equitable title. So, technically you would have triggered the due on sale clause. NOw…will the lender notice this?
They might…
I would imagine that when you move out of this house but still want to receive the mortgage stmts or the tax bills, you will have to notify the lender of a change in address. This can and does often trigger the bank to double check as to the reasoning behind the change in address. If you tell them you’ve got a land contractee in the property then they may (and are legally empowered to) call the loan due. If you only have renters in there which do not have an equitable title interest then they cannot.
How would they know if you have land contractees or ordinary renters?? Well, you may be recording a land contract of record for your buyers. Some states “require” land contracts to be recorded. Though I’ve not heard of anyone getting in trouble for not recording a land contract. But, it could be benefit for your buyer as well as you (the seller) since a recorded land contract for many lenders means that the buyers (when they go to obtain new financing to cash you out of the land contract) are more easily able to get a loan b/c getting a loan on a land contract is often considered by most lenders to be a re-fi rather than a brand new purchase-money mortgage.
Hope this helps. Anyone else with any related insights?