Subject To Concerns And Questions
I have a few concerns about taking property Subject To.
Do you have the seller sign a disclosure form stating that they are aware of the fact that this transaction could trigger the due on sale clause and that the loan will remain in their name?
Do you explain to your buyer that the property was purchased subject To and the bank could call the loan due? Does properly disclosing this fact make selling more difficult? The buyer might be worried about losing their down payment if the loan is called due or if the seller claims bankruptcy.
When you sell via CFD, do you record the contract? In Ohio, the seller is required to record all land contracts.
What if the seller claims bankruptcy and does not reaffirm on this debt? Does the bank foreclose at this point?
Some attorneys seem to think it’s a crime to violate the due on sale clause. They also do not like contracts that include the right to assign. These seem to be the biggest objections to overcome when the seller has the contract reviewed by their attorney.
An investor in my city was on the news for taking a property Subject To. The house was in foreclosure, so he paid all the back payments, which saved her credit. However, since the homeowner was unable to obtain a new loan, she called the local news claiming this real estate investor scammed her. Personally, I think he did her a favor.
I am thinking about buying John’s Locke’s course soon.
[ Edited by nash87 on Date 09/12/2004 ]
hi, i bought the manual and it was good. has lot of contracts and what not. Yes i have heard about a news issue like this before and kind of ruins our rep. yes have them sign some sort of CYA form. and yes you are correct. he was doing the seller a favor. o well, Thanks, Ryan
nash87,
Have them sign a statement that they are aware that their loan has a due on sale clause and that the loan will stay in their name.
You are offering your buyer owner financing. They would ideally be in a short term CFD with you that must be completed within two years. Regardless of how the property was acquired by you (unless you own it outright, there is a loan in place with a DOS. Don't even bring this up to your buyer. This would be pretty normal.
Your CFD agreement should not have an assignment clause, and you're not assigning your Sub2 purchase, so don't worry about an assignment either.
In the case of BK, You own the property, Not them. Continue to make sure that the payments are made on time, and don't stop unless and only if they stop accepting your payments. As long as the loan is a performing asset, the incentive for the lender to foreclose is extremely small.
Have the attorney read the following article by real estate attorney / investor William Bronchick regarding the due on sale clause.
http://www.legalwiz.com/dueonsale.htm
When your buyer is having their attorney review their contract, the only thing their attorney is reviewing is the Contract For Deed. Nothing else, No problem.
With regards to keeping out of the news, I would highly recommend that you invest in John Locke's course. It goes over in detail what disclosures to make to cover yourself, and step-by-step how to handle the transaction, including using Loan Servicing Companies etc.
It will be well worth your time and $$.
Good luck,
Jeff