BiggerPockets

What i am curious on is what do you do if the finance company calls the loan due. From the reading i have done in Wendy Patton's book banks can do that but they haven't because the intrest rate is so low. I have already decided that when i start investing in subject tos, after i talk with a local lawyer about some legal issues, i will be sending a letter to the lender informing them. Do you do this? Do you recommend this?

Jason, Jon, is right. If they do call it due then you will need to satisfy the loan by either re-financing into your own name or selling the property. The reason why you buy right is incase this happens you're not left with the bag and you certainly don't want to let it foreclosure and affect the mortgagee adversely.

Don't be so quick to think they will call the loan due if interest rates jump up either. You have to understand why they would even bother you to begin with.

Are you making the payments on time?
Is the property insured properly?

The banks are making money from you making the payment on time, every time. The only reason why they would call it due because of the interest rate is if they notified you that they will accelerate the loan IF you don't re-finance with them at a higher interest rate.

They don't want to call it and miss out on all the 'interest' they'll be collecting. If they accelerate the loan, they're only going to make more money if the new purchaser uses that particular bank for the new financing at a higher rate. If not, they're not making any more money and the cost of accelerating the loan and essentially getting paid off 'not a short sale' but short of the potential amount made from keeping the loan to term.

I do usually notify the bank but in a subtle way to not draw a lot of attention to me. Some 'gurus' will tell you to keep the current insurance in the sellers name and get new insurance in your name. I say why mess with 2 insurance companies when their first job is to deny claims and save as much money as possible. I cancel the existing insurance and place my own insurance and I always get the right insurance because this is not the time to skimp out and try to save a buck or two.

When I have my agent send the lender notification of insurance changes(or whatever their official term for that is) I also have them include a letter stating that I'm the one insuring because the seller is selling the property to me with 'some' owner financing and that they will see that they are still fully protected per their requirements.

If you go through some of my old posts, you'll actually find the exact letter/wording I use when I have that letter sent.

As for your recommendation, I would not send them a separate letter stating you are buying it sub2 but at least notify them of 'some' seller financing once they receive the new insurance info.

I hope this was of some help, if it was, don't forget to vote it up :)

Jason

The main reason we are having this discussion is the fact that lenders and their leaders are still brain dead.

The due on sale clause was created when lenders got tired of not being able to do anything when interest rates rose and they wanted to raise the rate when a property sold.

So being the geniuses they are and were, they came up with the due on sale clause. If any of them had a triple digit IQ they would have said no,lets come up with a clause that escalates the interest to the current market rate if it is higher or leaves it alone if it's not.

So I suggest you look into land trusts that keep the owner as a beneficiary to the amount needed to prevent the lender from proceeding with a due on sale action. It's nice to tell a lender to stuff it but if you want to talk then lets talk, here's what we want, pass it on to the decision makers..

I agree with your perspective on the insurance; an insurance expert appeared at my REIA earlier this year and basically said the same thing regarding a claim when 2 policies are in place.
Conveniently enough, BP has an article authored by that person covering the topic that can be read here:
http://www.biggerpockets.com/articles/607

Nick, as far as finding your earlier post to see your letter, I was unsuccessful. The site search operation works fine for some things (I found that link to the article above in a couple of clicks), and not so well for other things. And forum posts can be a tougher area to search, because there is just so much stuff. Could you help us out by finding your earlier post or re-posting the letter itself? Thanks. BTW - you got my vote :)

Nick,

He's actually not from my area, I think he is out of OHIO. But I am considering using him. I have posted elsewhere that I used Wrenn because they have single month vacant premisses policies for rehabs, and usually the vacant policies run 3 months non-refundable (if you sell in month 2, no refund of month 3). He has a series of articles here on BP, not just that one; I only posted a link to that one becasue it tied to this thread specifically.

Thanks for that link. One idea I sent to Josh is that it should be possible to gather all the knowledge already in the various parts of the site and have the members who are subject matter experts asemble a basic step by step how to guide linking the good stuff together. Pulling all the good sub2 stuff together into one place like that would enable all of those tough searches to be simplified into "just hit that sweet page with everything good". Ditto for Short Sales, Probate, Tenant Screening, Lease Option, etc.

Just my $0,02 worth there.

Jason,

Don't forget to vote on the posts that you find worthwhile!

I hear what you are saying Brian, but an escalation clause makes a fixed mortgage into an adjustable one. If I am out shopping for a loan on my home and want a 30 year fixed loan, do you think I would agree to an escalation clause? I certaionly would not, I might as well have a traditional arm which would usually start at a rate below the fiexed rates.

I don't have a problme with the DOS clsue anyways, who cares, they never enforce it and as long as you as an investor have multiple exit startegies in place, you are fine. I would much rather have them keep the DOS rather than institute some BS escalation clause in all their loans. Banks get enough as it is!