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how to get make offer on owner finance deal when seller is afraid of due on sale clause

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Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 09 '10, 11:53 AM


120000 asking price with 40000 down is what seller wants. the 40000 is the payoff on owner note with his bank . ok, how can i work this so that the seller will do the deal without me paying off his note ? he only wanted tthe 40000 down because he is afraid of the due on sale clause on his note . otherwise , he will carry a owner finance deal with me.



Bill G.

Real Estate Investor from Springfield, Missouri

Aug 09 '10, 12:04 PM


Two things, one you and the seller get on BP and look up due on sale and installment contracts. Have the seller read the profiles of those making comments on the subject.

Secondly, another advocate will probably be an investor friendly attorney in your area that will assist in the agreements. They will probably provide sufficient assurances as well.

Guess there is a third thought....give notice to the lender that you are about to do the installment agreement or wrap and see what they say. You might not get a reply....then speak to the attorney..

That's the short answer, IMO.



Mitch Kronowit Donor

SFR Investor from Orange County, California

Aug 09 '10, 12:13 PM


Just so I understand this correctly, you want to purchase this property "subject to" the current financing (takeover the payments on the existing $40,000 mortgage) AND have the seller carry a note for the remaining $80,000?

It sounds like a good way to get into a property with no money down, but I can see the seller's concerns. Are you willing or able to put anything down on this property? Coming in with some of your own cash might alleviate the seller's worries that you'll "walk" if things start to go south after you own it.

Also, what is your end goal for this property? Rent it out, flip it, live in it? Make sure the existing payments PLUS the payments to the seller's carry make financial sense.

Good luck on this! Tell us how it goes.



Bill G.

Real Estate Investor from Springfield, Missouri

Aug 09 '10, 12:25 PM
1 vote


Mitch, it appeared to me that the seller is willing, he's not concerned with default as much as the DOS issue, right?



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Aug 09 '10, 12:31 PM


Originally posted by Troy Michaels:
ok, how can i work this so that the seller will do the deal without me paying off his note ?


If the seller is truly worried about the lender calling the note due your only real counter is to tell him you are going to ask the lender for permission prior to transferring title. There are all kinds of smoke and mirror games that can be played with trusts and such, but at the end of the day you will be triggering the clause and there is no failsafe way around the clause absent lender consent.

Having said that, if the seller is motivated this problem generally goes right out the window. I find that the people that have problems with this are the ones that over explain things to the seller and make them uneasy. The investor should have the ability to pay the note off in full in the unlikely event that it is called so it really shouldn't matter whether or not it gets exercised by the lender.

If the real source of uncertainty is that the seller thinks you won't make the payments you can insert an "in rem" clause in your contracts giving the seller the right to take the property back in the event you fail to perform as agreed.



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
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Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 09 '10, 12:40 PM


no. this is not a subject to deal . the owner wants to owner finance the whole deal ,the 40000 up front was asked by the seller as a means of clearing his note so that he could carry a free and clear note without having to worry about the due on sale clause . i want to gain control so that i can rent the house out to a section 8 tenant . if there is a way of gaining control without a complete transfer of title , i would still do the deal.



Mitch Kronowit Donor

SFR Investor from Orange County, California

Aug 09 '10, 12:42 PM


Originally posted by Financexaminer:
Mitch, it appeared to me that the seller is willing, he's not concerned with default as much as the DOS issue, right?


Ah, yes. Thanks. I saw that but read something else. :mrgreen:



Bill G.

Real Estate Investor from Springfield, Missouri

Aug 09 '10, 12:46 PM


Originally posted by Bryan Hancock:
Originally posted by Troy Michaels:
ok, how can i work this so that the seller will do the deal without me paying off his note ?


If the seller is truly worried about the lender calling the note due your only real counter is to tell him you are going to ask the lender for permission prior to transferring title. There are all kinds of smoke and mirror games that can be played with trusts and such, but at the end of the day you will be triggering the clause and there is no failsafe way around the clause absent lender consent.

Having said that, if the seller is motivated this problem generally goes right out the window. I find that the people that have problems with this are the ones that over explain things to the seller and make them uneasy. The investor should have the ability to pay the note off in full in the unlikely event that it is called so it really shouldn't matter whether or not it gets exercised by the lender.

If the real source of uncertainty is that the seller thinks you won't make the payments you can insert an "in rem" clause in your contracts giving the seller the right to take the property back in the event you fail to perform as agreed.


Bryan, "in rem" clause, is this Texas jargon or is my latin failing? A clause for the remedy of default? Just guessing...

Actually, a special deed of trust can be used for the wrap, which I used for awhile years ago before I got so bold in doing "In Your Face Lender" deals. (lol)

Your default provision is not limited to the power of sale where non-judicial foreclosures are permitted but you can also have a reversion in the event the lender calls the note with the seller selling the property and paying the borrower an agreed amount. There are other sweetners as well to have lenders look the other way. But I prefer the notice route and the lender failing to object in a timely manner, which may then be construed as consent, that's what I call a "In Your Face Lender" deal. (But don't call it that within ear shot of the lender!)



Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 09 '10, 12:56 PM


i want the right to rent the house ,either with or without transfer of title . thats the immediate goal.



Bill G.

Real Estate Investor from Springfield, Missouri

Aug 09 '10, 01:32 PM


Then do a master lease and an option. You won't have those problems! Search "Master Lease" here on BP. Need help come on back!



Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 09 '10, 02:05 PM


i researched master lease . how can this work with a single family home? would i lease the house with a option to buy, then sublease the home ? would there be language in the master lease of the single family home giving me that right?



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Aug 09 '10, 02:43 PM
3 votes


This is usually just called a "lease/option" when discussing a SFR. The master lease is a more common term for a multi, since you're leasing the whole thing then subleasing the individual units.

Yep, you would want language that allows you to sublease.

Another option would be a land contract. The seller retains title, but you have more control than with a lease option. The IRS views a land contract as a transfer of ownership (i.e., you get to take the depreciation) where a lease/option does not. Strictly speaking, it does violate DOS, too, though. But the seller retains title.



Jon Holdman, Flying Phoenix LLC


Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 09 '10, 02:53 PM
1 vote


another problem in this case, in order to do section 8 , the housing authority wants proof of ownership and insurance . a lease option wouldnt work in this scenario?



Bill G.

Real Estate Investor from Springfield, Missouri

Aug 09 '10, 11:38 PM


Do a lease option with the right to sub-let. Do a seperate lease agreement with and the owner signing the lease as "landlord" for the Sec. 8 tenant.

If this is a problem, have the rental clerk at the PHA or Sec. 8 Adminstator let you spek to the Executive Director. The owner has to sign the lease, there is no prohibition of an owner and a senior leasee signing the lease. If the ED has a problem with that use an option and have the owner make the lease and he can assign the lease under your option.



Troy Michaels

Real Estate Investor from Atlanta, Georgia

Aug 10 '10, 05:43 AM


ok. this what we are negotiating : 120000 asking price , amortized 30 years owner finance with 10000 down. 4000 of down payment will be spread out over the first 12 months and included in the payments or held as a separate note. the remaining 6000 will be due in 12 months as a ballon. ok, section 8 will technically be making my down payment so its still no money out my pocket . this all contigent on the seller getting a waiver on the due on sale clause . how does this all sound? i start some cashflow on the second year of this deal.



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