Obviously, those who argue this have not actually been in a situation where a lender threatened to invoke the DOS. Now all the folks who love to look for case law and find that there isn't any you might ask why that is.
If a lender invokes the DOS it is as a violation of the DOT and the remedy is to proceed to foreclosure, which is a non-judicial process that means most often it never goes to court. For the issue to get to court, the borrower has to file suit.
Here are my actual experiences with the matter. First of all, you can't really put me in the same seat as most all other investors. I have yet to meet anyone on BP or any other RE site that owned a mortgage company that serviced loans. Yes, there are a bunch of "loan officer types" there may be someone who works for a bank who works in operations, but I don't think they are the director of servicing opertations and make the call on such issues related to the DOS.
So far all the discussions on BP about the DOS have been with investors, Realtors and lower level bank or lender employees that state opinion without experiences in the matter. We have had this discussion before on BP and no one said I lost my property over this issue to my knowledge. Not trying to be demeaning in any way, everyone has opinions and I believe in this matter those opinions are formed by what they have researched and that's okay.
Now, from the trenches of servicing thousands of obligations and as the first servicer in the midwest of privately held obligations, I had to address the DOS issue several times a year with Sub-2s, contract-for deeds and other installment arrangements.
Most all of those issues were taken car of on the phone, not in court. The discussions are close to what I mentioned above.
There are basically two ways a lender begins to investigate or start the DOS issue with their borrower, formally and informally, a registered letter or a phone call. I found the best way to answer such inquiries of initial deamands was with a phone call or, with me taking my time and going over to the lender if they were local and meeting face to face.
Now, what is unusual that no one here has experienced is the fact that a third party servicer has gotten involved presenting the contracts being administered. This makes a big difference to an underlying lender, the transaction is not what they initially thought, it was not two individuals doing something between themselves who have no real estate lending knowledge. So, it would not be accurate to say experiences by investors would be the same as mine.
In the beginning, we did not give notice on installment deals and simply filed documents for record as appropriate. In those instances where a lender talked about the DOS the only leg we had to stand on was that the issue was being professionally serviced and guaranteed.
Sorry, failed to mention that we guaranteed payments and had the right to step in the shoes of the note holder, secure the collateral and dispose of it paying the amounts remaining.
Under those circumstances our and my contracts were not such a critical issue that any lender continued with the DOS, that includes BoA several times, Wells Fargo, Citi Corp and many others.
Sometimes they wanted to see the docs related to the deal, those were provided. I know that in some instances the issue went to a legal department of the lender and we would discuss the issues. They chose not to continue with what absolute right they had to make a demand.
Later on, we began giving notice and heading these issues off early instead of having problems arise later on. I found that doing so there was usually no immediate response. We also used three attorneys, one in St.Louis, one in KC and one here in town. I mention that because it was their opion, not that of a loan officer, that we should defend such issues using their acceptance by not acting in a timely manner after having benn given notice. So I did.
In those matters when I brought up the defense some lenders I spoke to acted as if they were not impressed but after going through and giving in depth details, they simply fell silent and did nothing. Some lenders thought they had been had by not acting and let go of the issue. I had more success in defending the matter when I gave notice.
And another "unfair" point that might have helped me in keeping the wolves at bay was that when I spoke to another lender I could do so as a past FDIC Bank Examiner speaking their language and showing concerns for their position, protecting their collateral and guaranteeing the transaction. I say unfair because I only know of one other regulator on BP and others here won't have that advantage, so it's unique and not at all like the transactions done by investors.
Now, I can't say I always won either (I did in the end, but with problems) there were about five times where I simply agreed to payoff the underlying lender as I did bump into a few hard noses, BoA in KC, a state bank in Little Rock and some secondary market servicers, Lincoln Service. Time periods varied but probably about 6 months on the average, none sooner than 3 months as I recall.
But over the years, holding these deals together with DOS concerns more than 90% of the time has been my experience. And it was easier to accomplish by giving notice. It also adds to the integrity of the deal and not conducting business in a manner that could appear to be doing something sneaky, that tics off a lender.
I'm sorry this is so long and I have never spilled the beans like this before. So hopefully you can all see that wit respect to these issues, I'm not giving an opinion so much as I am advising based on actual experience and that experience is unique, not at all like that the average investor will bump into. That's also why I strongly suggest the use of servicers on such deals!