PPP Secret For Us Sub-2 Investors Rarely Mentioned:
Ok.. I am getting my RE Brokers License as we speak, and I own EVERY Creative Course out there - but never did I read in a Creative RE Course that:
A lender CAN NOT charge a pre payment penalty if they enforce the due on sale clause. If they decide to excellerate the loan because the owner is no longer on title; then the PPP is not charged. (Fact of California Real Estate Law).
Also, I have heard from Randy France (ABC's of Sub-2) that per the doctrine of Latches and Estoppel the lender looses their right to enfore the Due on Sale clause because they accepted payments from another person other than who signed the Trust Deed (or mortgage). Simply put - if we as investors pay the monthly payments like we should then before long - we have created our own basis for a legal right for the lender to continue to accept the payments.
...and doing something illegal is not my plan. I have never been that attracted to the "Grant deed to Trustee" and name the trust "1207 Bethel Family Trust," [the address of the property used so the lender will assume its for estate planning only] , or "the Jone's Family trust JasonFresnoCA as trustee."
The asset search done by an attorney only needs to charge his clients $500 or so additional so he can purchase a Creative RE course to learn where everything is - and then tag the benefiary. ??!!
Anyway, I follow the last posters advice on my last Sub-2 deal. I TOLD Chase Manhatten that I had purchased the property and woukd gladly make payments on time and that they could call on me. They had no problem at all. When I went to sell the property 8 months later the escrow officeer understood fully what was going on- no problem. The PPP was a problem - but it is tax deductable as interest paid on a loan.
All in all my policy is to disclose disclose disclose, if they say "you can't do that ... then I will say "I will find someone who can." Afterall buying Sub-2 is NOT illegal - if anyone gives you beef - just say "Please look at line 503 of your HUD-1 statement."
I see nothing wrong with using a Trust--just don't lie about anything when doing so. Disclosure to the lender is a great idea--one, because it may then invoke the legal protection mentioned earlier and two, because it will provide protection from being accused of any possible wrong-doing should overzealous officials start a witch hunt.
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Barnes vrs. Resolution trust, as John Locke has very helpfully pointed out to me, specifically prevents Laches or Estopel from being used to stop a lender foreclosing pursuiant to a Due on Sale clause. Merely because they accepted some payments does not mean they have waived their Due on Sale rights. If there was notice and they continued to accept payments for some period of time (say a couple of years) then you might have a Laches case, but I wouldn't count on it.
The advice to disclose is always good advice.
Thanks, King! That makes a lot of sense.
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commercialking,
Insofar as not being able to use the laches/estoppel defense, I would think there would be provisions in the mortgage that basically say just because we may not enforce this doesn't mean that we're waiving any/all rights we have. Yes?
Nancy
My hero Ron Legrand says "its easier to ask for foregivness than permission," being that most conventional lenders simply don't care - I am still going after Sub-2's and will advise the lender of my intent- worst case senerio I have to sell in a short period of time. Most probable case is as I have personally experienced - they will continue to take the monthly payments as per the trust deed.
Jason:
.
As a point of interest, who exactly at the lender are you notifying of your transfer of the deed? Are you just sending a letter in with the payment coupon?
And aren't you putting yourself at some risk by announcing transfer without PRIOR consent from them?
As you say, worst case you're looking at a quick sale or refi, but unless you have contingency financing arranged to cover this, you can't always guarantee a quick sale (or can you? If so, I'm all ears...
Andy
This was Chase Manhatten Bank. I purchased a house with a $119K loan on it from a lady who could not adford to make the payments anymore (she only had it 7 months). I paid full retail for a title policy and escrow thru Stewart Title who had no problem with the Sub-2. I got the grant deed and the trust deed stayed in the sellers name, Stewart title ensured me as the new buyer and did not request any payofff statement. I wrote a letter to Chase Manhatten and also called with a follow up to their loan assumption dept. I told them I bought the house and I would continue to make payments. They asked if I wanted to "assume" it. I said no. They said they will accept the payments in the meantime but I shpuld assume the loan formally. I said, thanks. Thats was all I ever herd from them - until I got the place sold (8 months later.) My original point is very important I think. IF CHASE DID excellerate the loan and call it due - they would not have been able to charge me the $4,000+- pre payment penalty. This is an expense that I did indeed have to pay because the loan was only 15 months old (thank God it is tax deductable.)
All in all, I would do it again- and made over $20K net in the deal and the lady who sold it to me gave me a refrence because she came out ahead as well.
I am not afraid of conventional lenders calling the loans due. (So long interest rates stay below 8%)
After you get 500 of these deals done, will you be able to report back that 0% of the loans were called due as I believe John Locke would report after his first 500?
Seems like an un-needed extra step ... just to create more risk for yourself. You're profit will be less if you have to refi yourself, and I consider lost profit potential as risk
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It IS a required extra step for me starting in Feb 05 when I am a Licensed Broker. But If I do 500 deals , no I won't be "reporting back," to anyone anymore!
So is it best to notify the lender or not? Or actually is it required that the lender be notified? Probably by state law right, well I'm in NC and am trying to purchase two sub2 properties, and am a beginner. Will be purchasing on a personal basis not a land trust.
Lynn
There is no legal requirement for you as Buyer to notify the lender the property has changed hands (unless you're a licensed agent, perhaps), nor is there a legal obligation for the Seller to inform the lender; however, if you lie to the lender or tell the Seller to lie if asked by the lender if the property was sold, that could be interpreted as fraud.
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Quote:
But If I do 500 deals , no I won't be "reporting back," to anyone anymore!
Touche
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