I agree with everything you’ve said in this post. However, I would like to make one point regarding your last paragraph.
When the original owner deeds the property into a trust naming himself as the sole beneficiary, the lender is prohibited from invoking its rights under the DOS clause. (Garn-St. Germain, aka the Federal Depository Institutions Act of 1982 [USC, Title 12, Chapter 13, §1701j-3 (d)(8)]).
BUT, as has been discussed many times on this forum, when the original owner divests himself of the entire beneficial interest of the trust, the lender COULD invoke its DOS rights.
ALSO, as has been discussed many times on this forum, the likelihood of the lender discovering the transfer of beneficial interest is slim to nil.
I’m sure you’re aware of this, but I didn’t want a “newbie” to read your post and misconstrue your last paragraph.
If you try to protect yourself by having your Lease/Option agreement (with the seller) notarized and recorded in the Recorder of Deeds Office, how do you avoid the first mortgage lender invoking a Due On Sale clause? 2. Is it a choice you have to make either taking a chance without recording or…? 3. What can happen if the Due On Sale is triggered? 4. Does any seller put up with protections of your interests such as a performance mortgage that prevents him from adding additional 2nds, 3rds, etc. and/or an escrow arrangement to make sure the payments on the first are paid in a timely fashion? 5. Is it realistic to expect a seller to produce his mortgage note to assure you that there’s no balloon lurking to bite you? 6. Do people in the real world just fly loose and stay lucky?
Re: Lease/Option trigger DOS if Recorded? - Posted by Craig (IL)
Posted by Craig (IL) on June 15, 2002 at 14:03:38:
One doesn’t record the option per se. Never do that. Instead, there’s 2 ways to do it. You can record a Memo, such as Ron Legrand’s “Affidiavit and Memorandum of Agreement Concerning Real Estate.” This is the instrument that notifies the world about your option without disclosing the terms. This method does show your name, though, but I’m told there’s not much chance a lender will ever find it.
Most agree a better way to record is with a Performance Mortgage (PM) for the amount of profit you intend to make. A PM affords you far greater protection in case your Optionor tries to sell from under you. I’m not sure, but perhaps a PM will look less suspicious to a lender.
The way to protect yourself against the DOS is to dead the property into a trust with the original owner as beneficiary. Then, have the benficiary resign his/her interest in favor of you.