L/O And Due On Sale Clause
Hi All,
What do you guys think of John Reed's Due on Sale Clause article at http://www.johntreed.com/dueonsale.html , more specifically the following section:
Lease options
Many gurus say you can get around the due-on-sale clause by doing a lease option instead of a sale. Wrong. Subparagraph (d) of the longer clause covered that. Now you have to look at the law itself [§1701j-3(d)(4)] to learn that the due-on-sale clause is triggered by any lease longer than three years. And it's triggered by any lease that contains an option to purchase the property, regardless of the length of the lease.
[addsig]
Very informative thank you!
1) Keep your leases shorter than three years. 2) Don't use one all inclusive Lease/Purchase contract. Use two separate documents. 1st being your lease, and the second being the purchase agreement. These two documents need to be seperate stand alone documents that do not mention the other in the body of either. 3) Have them sign a third document that states that of they are evicted due to a violation of the lease that the purchase agreement automatically becomes null and void, and that any money that they have paid into the purchase is considered to be non-refundable deposit.
Regarding the DOS Clause. This is not something that automatically happens. They basically state that the lender has the option to call the loan due.
With foreclosures at an all time high, and all the non-performing loans that are out there, the lenders simply have other more pressing issues than calling loans due that are current. Foreclosures cost lenders money, and loan officers get bonuses based on the percentage of performing loans that they have in force. If you keep the financing current, and try to have the property sold in a few years or refinanced, there will not be enough incentive for a lender to consider evoking the DOS clause.
It may not be prudent to flaunt the fact to the lender that you took over one of their loans without their written permission, or becoming personally liable for it on their documentation, but there's no need to lose any sleep over it either.
Good luck moving forward,
Jeff
In your lease state, first right of refusal instead of an option. It gets you around that legally.
Can anyone give me actual data on cases they know of where the lender exercised the "due on sale" clause on a lease option where the home owner was current in the mortgage payments and there were no problems regarding the loan?
Every investor I talk to either has never had a "due on sale" clause exercised by a lender and, if they know of a case involving another investor, they are few and far between.
Can someone shed some light on this that has done a fair share of acquiring property by means of lease optioning?
Dave
[addsig]
Lenders won't call the note due over a L/O. Can they? Sure. Wil they? No way!