BiggerPockets

If I found someone who was going to lose their house and I agreed to pay all the back payments in exchange for the title, would the bank really care if I started making the payments and that the title was transferred? Under normal circumstances, they probably wouldn't know if it was transferred, but I'm thinking they might get suspicious when the payments are caught up and made on time.

The suspicion is because they can call the loan. I would rent the house out. So far, I'm 1:1 with transferring titles. Knock on wood.

Good morning! The "due on sale clause" is basically "a protection" for lenders.

Back in, I think, in the '80s, mortgage interest rates "sky-rocketed" and what was happening, smart people were selling existing mortgages with lower rates.

So for example a 30 year mortgage @ 5% relates to a $1,342.05 monthly payment.

So if interest rates jumped-up to, let's say 12% in the 1980s, a new $250,000 30 year mortgage @12% would have a monthly payment of $2,571.53.

Taking this fictitious example one can see just how powerful it would be in the '80s to sell a house right along with an existing 5% mortgage on it,

vs.

Selling the same house without an existing mortgage. The buyer would obtain new financing at the "rate De jour" of 12% back then.

Can you imagine just how easy it would be to sell your home in the '80s, with existing financing, and possibly save a potential buyer around $1,200 per month in monthly payments?

How powerful was that!

So, the lenders, banks, etc. realized what was happening, and got congress to pass some laws,

and the "due on sale clause", which was seldomly exercised prior to interest rates "going hog wild" in the '80s.

One can only imagine all the possibilities, smart investors & "end buyers & sellers" of real estate, and/or existing lower interest rate mortgages back in the '80s.

Tons of money was made on the interest rate spreads. So banks wanted to protect their lending business, thus the "due on sale clause" was brought to light back then (even though it was around for many years, it "came to light in the 80s").

So to summarize my "long-winded" paragraphs above, it is my opinion that the "due on sale clause" will rarely be exercised by lenders, because they have no reason to do so.

In other words if a loan stays current and their is no huge "interest rate spread", I see little chance of a loan being called.

Just remember, lots of "I's" should to be dotted, and plenty of "t's" should be crossed, by a seller & buyer, to make sure these types of deals stay vibrant years "down the road".

IMO, the key to these types of deals, is honesty, disclosure, transparency, and more (such as good luck! LOL!).

rd

Nicole, yes the house still has a mortgage. I just wanted to bounce it off the experts first before I decided to move forward. I am also new to investing.
Thanks everyone. Maybe I'm being paranoid.

Any actual experience where a loan has been called, Ross? Folks here say that yes, they know of situations where it happened. Far more where nothing happened. I think the biggest risk of getting these subject to loans called is if interest rates rise.

Jeff I always wondered the same thing. But what you have to think is that someone will to transfer title and allow you to make payments is already facing default. So if they don't transfer the title then they will be meet foreclosure and there credit will be destroyed. Would you want that scar on your credit report? I have heard investors, renting it to the owners and I have heard of agreements were the investor will put it a land trust, make the payments and agree to give it back to the owner. If did a refi and payed him. If you have no job, dead spouse, grown kids, bad health, and now your facing a foreclosure that will destroy your credit. Oh yeah, you will rap that title in a box with a golden bow and deliver it to my door with fresh baked cookies and christmas carolers!

The bank foreclosed on the property in August. He said he was only 3 payments behind. He had no clue about the property; it was his mother's and he was out of state. The only thing he had was a phone number and no one ever answered or returned calls. If he had more information, I probably could have saved the house. Also, I just found out that the trustee sale announcement was posted in March. If I knew it was already in pre-foreclosure and not just behind on payments, I would have moved a little faster.

Did the bank mention anything about calling the loan due?

If this home happened to be in Colorado would this scenario be in violation of the Colorado Foreclosure Protection Act?