Due on Sale Clause – when transferring title
I have been to several seminars – and the #1 problem investors have run into lately is the lack of being able to secure traditional financing from the banks.
Phill Grove’s AMPS or MAPS program seems like an excellent program. Basically it “marries” people who have homes they cannot sell because they are underwater with their loans, with people who are unable to secure loans to buy their own home. The new buyer “assumes” the loan with contracts, and the investor makes an assignment fee. The most asked question about this is, “What about the due on sale clause?”
This clause in the mortgage contract may be triggered if the property is transferred, sold, etc. to anyone other than the person on the mortgage. Phill’s answer, along with attorney Mark Torok, is that it probably will NOT be triggered. It has not been a problem with the over 500 deals Phill has done.
That being said, it is worth reading more about it, and John Reed has written an article on the very real threat of the due on sale clause in this article entitled “The truth about getting around the due-on-sale clause.”
Phill Grove and Mark Torok have forms that are sent to the lending institution that informs the bank that the loans will now be paid by “____” and sent with the check(s) that will cover the monthly as well as other payments that are due. In this way, the bank has been informed, and by depositing the check(s), they have accepted the new arrangement.
Still, I am not convinced that I won’t be the poster child for the bank to nail with the due on sale clause. It most likely works (and has thus far). One point that John Reed brings up is that with prevailing low interest rates, banks currently do not have much benefit in calling loans due. However, if rates rise in the future, it may be in their interest to call them due, forcing refinancing at higher rates, and make a lot more from all of us.
Land trusts are another strategy that has been promoted by several experts. Land trusts add to the complexity, and might be considered by authorities to be concealment or worse. If your attorney who helps you draw up this strategy will back you up (Garn-St Germain Act), and you don’t mind another layer of complexity in your life, then it sounds like a viable solution. It’s just not for me.