Talking About The Due On Sale Clause With Seller
Hey,
When and how do you explain the fact that there is a due on sale clause on the mortgage to your client? Do you explain that on the first phone call? The appointments? At closing? Never? Just in explaining the CYA letter?
Is there a certain verbage that you use?
Thanks for any help,
Andy
How do you deal with homeowners insurance? Do you have the seller as a junior beneficiary?
SJ
I'm interested in the answer to this, too, and I disagree with samedwin's opinion: I don't want to get accused later of misinformation, fraud, etc. for never mentioning it. And never mind that it's in the contract--that may be legally true, but not that doesn't make it ethical. I'd like to be up front with both the seller and my future buyer.
I want to make sure the seller and my future buyer are clear on the possibility (however remote) of the DOS being invoked without making it a big deal.
I would not discuss DOS during the initial phone call--why bother if you don't even know if the house is worth buying? Go to the appointment and judge the person's motivation (if they pass muster on the phone screening first). You can also gauge their attitude and willingness to work with your more easily face-to-face.
I also think there are any number of ways of telling your seller about the DOS that won't have them running for the hills. The one that comes to my mind is that I'm going to be a party to this deal as well, and I'm not about to throw my time and money away if I thought the DOS would be invoked, etc.
Any other ideas?
andy
yes, samedwin is secretly afraid that he/she won't be able to handle the objections that come up.
people in preforeclosure are desperate, not usually based in reality, and are not doing well financially or emotionally. Hmmmm...do you think attorneys might be circling around them, looking for misrepresentation, non-disclosure, ANYTHING to use in a law suit to fill their pockets? You bet
I agree with you arytkatz. Maybe my problem is that I make a big deal about it. What is should do is sandwich it between several other unimportant facts and treat as if it was no big deal... I do think it should be mentioned. I don't want the CYA letter to be a total suprise... I don't want that kind of rep...
Wait until the negotiations (I guess that's what you'd call it) are happening. (If you're talking to the right people, most of the time if you're interested, so are they). You are going to guide the transaction. They are aware that you are going to leave their loan in place until your buyer brings financing to the table to purchase the property. Simply notify them of the DOS, get the CYA letter and if you use one, a power of attorney signed, and move on. The less of an issue you make it, the less of an issue it is. If this raises any questions, answer them honestly, truthfully and with confidence. Don't make it a big deal.
Good luck,
Jeff Mueller
Jeff,I totally agree with you that keeping it low key works best. Along with the CYA letter. The only way I see banks calling mortgages due is if we ever have a repeat of 1984 when mortgage rates hit 20% in some areas.
Can someone tell me what a CYA letter is? I know what CYA means, but what is the content of the letter? What are you disclosing?
Thanks!
Cya means communicate what you are doing and have it on paper. When I first started I too was afraid and did not communicate effectively. The seller pleaded innocent and told her boss, who was the head of a law firm in the area. Ultimately, I refinanced just to keep it simple.
So what I’m getting from this is:
The SELLER WANTED to move into this house some time ago.
The SELLER WENT to the bank.
The SELLER GOT the loan.
The SELLER INITIALED every page of the mortgage.
The SELLER WAS MADE FULLY AWARE of the DOS by the banker when they initialed the page.
And I have to give the seller a CYA letter saying hey, “your loan has a DOS in it but I’m still buying it like this…I just want to make sure that you know I know that you know that you were made fully aware by ME that YOUR mortgage has a DOS clause in it.” Here sign this.
I don’t knock the CYA letter for those of you who use it, but what does it do? Protect you against what?…. Fraud?….How? The SELLER signed on the dotted line saying they know about the DOS, not me. The seller should be giving me a CYA letter.
What will be the sellers case be if you got sued by one….”Oh your honor, I forgot about the DOS when I sold the property this way….I mean I know I initialed the page on the mortgage that the there was a DOS clause, but I forgot.”
Do I talk about the DOS clause with sellers?…Only if THEY bring it up, and some have. I actually learned a thing or two from them and their understanding of the clause. Did that conversation stop me from buying or them from selling?……nope.
Get it signed if it makes you feel better, but it won’t make or break your deal.
Well put nebulousd.
I won't bring this up during any conversation with the sellers for one simple reason. There's really no point in bringing it up. Why the heck is there such a big deal being made around this? Keep in mind it's NOT illegal to make payments on the loan that is in someone else's name. I heard there was once a time when there was NO due on sale clause. Of course I am too young to know this first hand, but that's what I've been told.
Ryan J. Schnabel
If the seller has an objection or concern with the DOS clause, I think one good way to handle it would be as follows, especially if your seller is someone who has had financial problems in the past::"Mr/Mrs Seller, by keeping the Deed of Trust in place and allowing me to take title to your house and make your payments, you will be rebuilding your credit without doing a thing. I will be the one making the payments timely each and every month, and your credit will improve because of these timely payments." This would work well with someone in preforeclosure, but these sellers are usually so motivated the objection doesn't arise anyway. Good luck.
Someone correct me if I'm wrong, but my understanding of the CYA letter is that you are simply having the seller acknowledge that he entered into this transaction of his own free will and was not manipulated, cohersed, frauded, blackmailed, etc. into signing any of the documents. That way if something "bad" happens down the road he can't say he was duped. I dont think the DOS clause has much to do with this letter.
I explain to the seller what I’m doing. I also remind the seller of there DOS clause in there contract. To do other wise in my opinion is a bit shady. I know they signed the paperwork saying they understand there loan and the DOS blah blah blah… But seriously I make it a point to educate my sellers a little on what I do. I have found it brings there level of trust in me up a notch.
For instance, I don’t tell them about it then a while down the road they find out about the DOS clause. They call me and complain that I didn’t inform them about the DOS clause that I obviously HAD to know about. I then tell them too bad so sad, you should have known before you did business with me. Personally my ethics will not allow me to not bring up this oh so important minor detail.
I’m still very new at this game (only been actively looking for 6 weeks) and I have only got belly to belly with 4 sellers. But out of the 4 people I have talked with I have gotten 2 of the deals. 50% isn’t a bad percentage.
To each there own is what it boils down to.
Did you not buy those 2 houses because you notified them of the DOS?
Me telling them about the DOS was not the reason I didn’t get them.
The first one the couple decided they would use a realtor because creative real estate was something they just couldn’t wrap there mind around.
The other one I was about to have an agreement with then the seller got greedy and I walked away.
It just makes ME feel better when I bring up the DOS clause.
And the two that you did do, what was their situation? And what did they say when you brought up the DOS?[ Edited by nebulousd on Date 03/17/2004 ]
The 2 that I did do:
Well the first on the lady just wanted out from under the house. She lived in a different house and her friend was renting her other house out. The original plan was that her friend would buy the house from her but her friend had a string of bad luck and wasn’t able to afford to purchase the house. Due to bad luck the friend was also not able to make full rent payments so the owner was losing about 400 a month out of pocket.
I told her what I was doing and explained the DOS. She didn’t really even bat an eye..
The 2nd place the guy just needed out. Lost job, wife sick. Needs money NOW. I told him he didn’t care a lick about it either…
They were both not fully aware of the DOS clause though, and I feel that they appreciated me telling them about it. And I’m 100% sure I will get a glowing letter of recommendation from both them in the next week.
I don’t have them sign anything I just informed them to ease my conscious.
One more question and then I'm going to leave this one alone because I know by being the devil's advocate, I'm probably making someone mad.
Lets say you buy a house from a seller.
You get a CYA letter signed.
And for some strange reason, somewhere down the road, the lender calls the loan due.
What do you do then?
And if you tell me you do everything in your power to payoff the loan...then whats the point?
If you follow John Locke's Subject To script, he alludes to it in the Yellow Pad session with the seller by reminding the seller that the loan stays in their name until a new buyer refinances.
If the seller brings up the DOS clause as a specific objection, I suggest that you tell the seller that you have the financial resources to refinance the loan yourself. If you are not able to refinance the loan into your own name, then perhaps you are not ready to use the Subject To approach.
The "point" is to make me feel better about what I do. Like I have mentioned in all my posts so far….its better for me to lay all the cards on the table.
and yes I would refinance the house in my company's name. I do have the resources to do so.
[ Edited by Goose_man on Date 03/17/2004 ]
Goose_man
I have to agree with nebulousd here.
What is the point (in your opinion) about bringing up the DOS clause with your seller?
A worst case scenario might suggest that you've had a property subto for 6 months, when for "some" reason... the bank evokes the DOS clause...what happens then? (as far as the mortgage owner is concerned) n o t h i n g right?
You (because you are an ethical person) take what ever steps are necessary to ensure that the underlying mortgage is paid off. right? In fact the seller might not ever be aware that DOS was called.
So I am not sure where you are coming from as far as your feeling that you are being more "ethical" by telling them. I don't see the reason. But, I have been "enlightened" before
I just made the last payment on the only 'subject to', but on my L/O's I take a page from LeGrand. Tell the bank 'you can have the property back and of course I will stop making payments and I CANT guarantee WHAT condition the property will be in when you (the bank) get it back. His point is if the bank can't bully you and force you into a situation, as long as your paperwork is done well and you dont allow them to be a bully TO you.I tell ALL my sellers that I will make the payments AND there is a DOS. I dont hide a thing. If the bank wants the house THAT bad, let them have it. Ill keep the $(rent payments), they can have the house. (a lil joke) Im sure it CAN happen, it just hasen't happened to me and i have JUST enough attitude to take Rons approach. Banks are in the $ buisness, not in the house buisness. I just dont see it as being that big an issue.
Just a thot
Joe
Andy,
Sheesh, no wonder you are confused and not sure how to deal with the DOS clause and sellers.
First, I firmly beleive the DOS clause is a non-issue...........IF dealt with appropriately.
Now, someone else posted that they NEVER bring up the fact that the mortgage or deed of trust in the sellers name has one.
This is just plain crazy.
Sure, a seller signed docs, and should know what they signed.
Reality check though.........they don't, at least 99% of sellers have no clue about the specific language in the mortgage they signed.
I feel that full disclosure is your best bet, for ethics, and to help make the deal work.
Some sellers might object, not all, but why wait til they do.
Head off objections and concerns before they become them.
Before I go more into "Why?" I bring up the DOS clause in my seller presentation, face to face, I'll tell you how I do it.
When I set a meeting with a seller to view and inspect their house, I'm about 90% sure they'll sign with me.
This is due to decent phone screening, so we don't waste time, the sellers or mine.
When I set the appointment, the sellers are told to be prepared, and given some assignments.
1. Have all parties present who are on title and make decisions.
2. Have on hand any recent mortgage, insurance and tax statements.
3. Have on hand the papers from when they purchased or refied the house.
Now, in that batch of papers, will most likely be the deed of trust or mortgage.
I use this as a visual aid when presenting my servlce of buying sub2.
I pull out the mortgage or deed of trust and turn right to the DOS clause, reading it aloud to the sellers.
I highlight the portion where it says "Lender MAY AT ITS OPTION!"
And then explain how yes, there is a DOS clause, and the lender CAN call the loan.
I personally have NEVER had one called and tell the sellers this.
Further, I explain that I'm not an attny, but I was advised by mine about this issue and some exemptions from the DOS.
First, the lender CAN call the loan, but why?
Lenders do not want to own properties, they want performing loans.
As long as payments are made, the lender will not worry over the loan.
Second, say for example, Mr. and Mrs. Seller get a divorce, and Mr. deeds the house, wityh a quit claim in the divorce, something VERY common, without the lenders permission.
The lender cannot call the loan due, because federal law prohibits it, when title is transferred to a blood relative or spouse.
Another exemption is to transfer a property into a LAND TRUST!
Now, when the sellers sell, the deed the house to a land trust and no violation.
However, when the land trust is sold to the investor, that does violate the DOS clause.
But, this is a personal, non-recorded transaction, so no one is the wiser, and the lender continues to get payments as planned.
Being honest and upfront about issues, and why we handle things the way we do helps in my opinion.
Sellers might not understand, but they feel better having it explained just the same.
The other thing, if you DO NOT tell a seller, what happens if AFTER you present an offer to a seller, they CALL THE LENDER AND ASK?
Guess what?
Lenders say "No, you cannot do this!"
They are wrong, but your deal is killed just the same.
So, head that off, before its a problem, by being upfront.
Honesty is the BEST policy, and disclosure of possible issues and re-assurance that you have a plan for the unexpected, things just flow better.
HTH,
Jim FL
[addsig]
When responding to a post, start using the "quote this post" button. Never say "NEVER".
Cute. I think most of you have missed the point.
99.874% of you sound like a Ron LeGrand tape. Since you have listened to these tapes, and I have too, you feel his teachings are that of the holy real estate teaching guide. I agree, Ron teaches a great course, but by NOT doing what he says does not constitute someone as being unethical.
You read the mortgage to the seller.
Reading the DOS to the seller makes no difference.
Getting a CYA letter makes no difference.
The bottom line is, these people are already motivated, need out, have to get out, and at this point, if your taking their house and solving the problem, they could give 2 cents about the DOS.
Boy you guys should feel proud of yourself because you guys are going out and making these people aware of the DOS they signed and it ain't a big deal....right?
If it ain't a big deal, why do you go in and read it to the sellers?
If it ain't a big deal, why do you need a CYA letter?
IF it ain't a big deal, why is this THE ONLY thing you bring up that may serve as a problem with the deal....What about all the other things that can go wrong. Why no CYA Letter for all of those things?............I know I know, Ron LeGrand didn't teach it that way.
If the lender called the loan do, THE ETHICAL thing to do would be to cure the loan so having it called do, ain't a big deal.
If you walked into a house and the first thing the seller says to you is that they had 5 termite inspections done and the termite thing ain't a big deal, what are you going to think?
I respect the fact that you people have studied Ron LeGrand's course but his course is not the stamp of approval of how to buy and sell houses. YOU GUYS are the ones making the DOS a big thing. YOU GUYS are the ones confusing the new people about the DOS. I just think you need to know what it is, and how to talk about it.
Your CYA letter means nothing. Take it to a lawyer, see what they have to say about it.
Don't make people think it is unethical if you don't get a CYA letter, that is by no means a measure of ethics.
Andy, know what the DOS is, understand what is says, understand what it means...if you think it's important to talk to the seller about it, then talk and get a CYA. If you need to talk to the seller about it so you can sleep better at night (give me a break) and make you feel like your doing the almighty ethical thing, then talk about it and get a CYA.
In my book, as long as the seller understands the loan is staying in their name when I take the deed, THAT is my CYA.
When I take the deed, I make all of their house problems, my problem. So the DOS is then MY problem AND if the loan is called do, I will do all that I can to fix that. THAT is the ethical thing to do and no CYA Letter says that.[ Edited by nebulousd on Date 03/20/2004 ]
Do VA loans get called due more often than not or do they rarely get called due?
Please advise :-?
nebulousd,
Good point I have never thought of it that way because I am brain washed to a degree by Legrand, but also open minded or I wouldn't even consider this business.
I make it a point to inform everybody about everything. Out here in Calif. it seems everybody has an attorney.
So far no problems, but sometimes I think I talk so much explaining everything that my clients get bored.
Most just want me to perform as explained, get a check to them and shut up.
Oh by the way as to DOS. I just got through threatening a loan service department at one of our larger banking systems if he did not stop bugging me with his on again off again acceptances of my offer. I would just pay his bank off and they could go lay it out again at a much reduced interest. This little darb is at 7%. Why? I think he had a very bad FICO score way back in time. The Loan Service Officer says it is one of his highest yields at this time.
Also In correcting an account in foreclosure. I got permission from Loan Service to pay back due taxes on a five pay plan.to the Tax Collectors Office. Also got permission to pay slightly larger payments for the next six months to bring current the existing loan balance. He got a little annoyed when I went over the top and asked him for an interest reduction. Wonder Why????
Cheers Lucius 8-) 8-)
Quote:
On 2004-03-21 00:44, rfulky2 wrote:
Do VA loans get called due more often than not or do they rarely get called due?
Please advise :-?
Dear rfulky2
Over the last 10 years I have never had one called. I have even explained the takeovers of the mortgages. This is where the vet is going out of the property and someone new is coming in. I did a wrap on two occasions. No problem.
The one I did have a problem was on a California Veterans Loan. Seems they are really glorified land leases. The Vet does not hold title he has a land contract.
Of course I may have screwed it up a bit because I did explain the sale with the seller the friendly vet coming back with a rather biggy second Trust Deed. I needed to get into title to structure a second and first trust deed. So I did, but I had to make a payment to the CalVets while I was in transaction. Oh Well it all worked out.
Lucius 8-) 8-)
I don't even mention the fact that there is such a thing. Why make them fret, and give them another reason to be leary of you buying their house?
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=472
Thanks nebulousd!
SJ
Hey Neb:
Per that last link to norrist's article: if your seller's insurance co. doesn't have a commerical/landlord policy available, do you just go ahead and get your own:
You = named insured
Bank/Lender = loss payee
Seller = additional insured
Do you think that changing insurance companies (as opposed to just changing the policy) would cause a lender to sit up & take more notice?
Thanks,
Andy
You can change company's if you want but what the bank does, I have no control over and cannot say what they will and will not do. However, I have heard of people who have changed company's and have not had a problem. I personally have not heard of a case where the mortgage company has called the loan for changing insurance company's.
Make sure that before you take a house sub to, you are not prepared for the absolute worst case, if not, don't take it. [ Edited by nebulousd on Date 03/21/2004 ]
Sound advice!
I've been really running down info on the insurance and trust issues, all to look for a "relief valve" for DOS pressure.
I'm coming to the conclusion that there is no "magic bullet" for this: I've got a HELOC, good credit score, and good debt/income ratio that I can use to handle a called note if I have to...
Bring on the deals!!!
Thanks,
Andy