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#1 jtlab

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Posted 24 July 2005 - 02:24 PM

Can a l/o violate a due on sale clause with a lender?
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#2 mpine

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Posted 24 July 2005 - 04:54 PM

Technically, yes it can. But unless you have a very unhappy Seller it is highly inlikely.

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#3 jtlab

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Posted 24 July 2005 - 08:06 PM

Technically, yes it can.  But unless you have a very unhappy Seller it is highly inlikely.

<{POST_SNAPBACK}>


I do not quite follow, if a lender exercises its option to declare all the sums due, is it the Seller or you who is stuck footing the bill? If it is the seller, then their is no reason why a seller, happy or not, would notify the lender of this agreement.(I would think)

Another question is, if you use an escrow agency to handle payments, would that alert the lender?

Finally, isn't it a little to risky for the homeowner to use a l/o in cases like this?

thx in advance.
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#4 mpine

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Posted 24 July 2005 - 09:58 PM

I am not a Lawyer nor do I play one on TV or on this forum, but in the absence of Naked Investor Legal Counsil I will throw in my $.02

If the DOS is excercised you are typically given 60 days to either REFI yourself or REFI your T/B in, or even your seller can choose to refi if they wish to hold the property..

I have never heard of an escrow company tipping off a bank.

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#5 MichaelC

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Posted 25 July 2005 - 08:29 AM

jt, as Mike said, a lease option on a property may very well violate the due on sale clause. However, as I have said before, the chances of that happening are as likely as you winning the PowerBall lottery and being bitten by a shark on the same day.
As for the seller notifying the lender, that's not going to happen. Think about it. The seller is the one who is ultimately in violation of the DOS. They still are the owner, and they still are on the mortgage. So if they blow the whistle, they are turning themselves in, so to speak. So I don't think you'll ever see that happen.
My advice is don't sweat this issue. You'll have other things to occupy your time once you get going in this business.

#6 Todd S

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Posted 26 July 2005 - 08:04 AM

I actually had a seller who was concerned about the legalities of a SLO and wanted to discuss it with their lender. The lender wanted to see a copy of the contract so I supplied a blank copy to fax them. The lender said the agreement was good with them and to proceed.

#7 MichaelC

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Posted 26 July 2005 - 08:18 AM

I actually had a seller who was concerned about the legalities of a SLO and wanted to discuss it with their lender.  The lender wanted to see a copy of the contract so I supplied a blank copy to fax them.  The lender said the agreement was good with them and to proceed.

<{POST_SNAPBACK}>

Good to know not every lender lives inside a sealed box. Thanks for sharing, Todd.

#8 jtlab

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Posted 26 July 2005 - 10:54 AM

I actually had a seller who was concerned about the legalities of a SLO and wanted to discuss it with their lender.  The lender wanted to see a copy of the contract so I supplied a blank copy to fax them.  The lender said the agreement was good with them and to proceed.

<{POST_SNAPBACK}>



He probably just wanted a copy for himself. :unsure:
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#9 Adam King (MI)

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Posted 01 August 2005 - 06:01 PM

Dudes,
If a lender tried telling me an option (that SPECIFICALLY STATES that it IS NOT a contract for deed or to be construed as a mortgage) of any kind violates the DOS clause, I would laugh myself silly.

Hey, try this.

Mr. Investor
Hi, this is Mr. Investor and you have a property at soandso ave. I just talked to the owner and I'm going to take over his payments for him. I'm also going to take the deed, but the mortgage is going to stay in his name. I'm also going to make sure that I get the tax benefits since I'm going to make the payments. I'm also thinking about sub leasing it, but haven't made up my mind yet. Just calling to let you know.

The mortgage company's response.
Uh...so Mr. Investor, I'm an hourly employee and I don't give a crap or even understand ANY of what you just said? But if you would like, I can take down your information so we can mail you the mortgage payment. Would that help you?

Yeah, been there done that.
Adam
PS Country Wide is the only company I can think of that seems to want the properties back. Even if they're totally losers! Man, they drive me nuts... ;)

#10 mpine

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Posted 01 August 2005 - 06:56 PM

With rates starting to rise, any major shift can cause banks to start using the DOS. Not that it will happen soon but I do feel once rates start to go over the 8% mark on OO you will see a huge shift in the market.

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#11 Dave T

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Posted 16 August 2005 - 08:28 PM

Adam,

You have described a Suject To transaction, not a lease option deal. A Subject To deal does trigger the DOS. It is the lender's option to exercise their right to call the loan due, though most won't if the loan is kept current (CountryWide is an exception).

Going back to Garn-St. Germain, the lender IS allowed to exercise their right to call the loan due in a lease/option deal IF the option term is three years or more.

#12 HiltonHeadInvestor

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Posted 10 June 2008 - 09:15 AM

Well....i'm pulling this one out of the vault, Michael.

I was speaking with a Realtor/Broker in NC about SLO's and Sub2's. This is what he said to me:

"Because, part of the code of ethics states (paraphrased) that you, as a Realtor, will not knowingly allow or encourage a buyer or seller to break contracts already in place, ie, The DOSC in practically all mortgage notes today. So, if you do these without the written consent of the lender (not a sub2), you are breaking the code of ethics. Moreover, it goes on to state that if you KNOW about an act, then you should report or possibly be in violation of the code of ethics."

I then sent an email to Wendy Patton's office asking if she (Realtor/Broker of many, many, sub2's and LO fame) had any comments to this. She basically said it's a bunch of malarky.

Isn't it a Lenders CHOICE to call for a DOSC? As long as it's disclosed to the homeowner then everything should be ok, right? I'm just trying to Cover myself.
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#13 MichaelC

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Posted 10 June 2008 - 09:46 AM

I then sent an email to Wendy Patton's office asking if she (Realtor/Broker of many, many, sub2's and LO fame) had any comments to this. She basically said it's a bunch of malarky.

Isn't it a Lenders CHOICE to call for a DOSC? As long as it's disclosed to the homeowner then everything should be ok, right? I'm just trying to Cover myself.

Darin, I agree with Wendy and I agree with you. I'm of the belief that if you provide full disclosure to all parties involved, you're acting ethically and honestly. Obviously, your buds in the Realtors Association don't agree. Too many Agents and Brokers think that if you aren't buying a house at full asking price with 20% down and new financing from the bank, then you must be doing something illegal and fraudulent.

#14 GetSmart

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Posted 16 June 2008 - 04:11 PM

its funny how a l/o may go against the realtors code of ethics especially since in NC there is a spot for owner financing under the purchase terms. Plus in order to completely understand if it does violate the dosc you have the read a copy of the deed of trust or mortgage to see what it says. Most lenders interpret a l/o as a violation if the lease goes over 3 years.

read this http://www.law.corne...01---j003-.html
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#15 GetSmart

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Posted 16 June 2008 - 04:15 PM

After reading it myself, it would probably be best to have the lease and option as two seperate agreements.
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