Due on sale clause insurance
Hello, I am looking to do a seller finance subject too combo deal. We are looking for an insurance company that would provide us with a due on sale clause protection policy. Any referrals would really help us secure this deal! Thanks so much!
Quote from @Dominic Inglese:
Hello, I am looking to do a seller finance subject too combo deal. We are looking for an insurance company that would provide us with a due on sale clause protection policy. Any referrals would really help us secure this deal! Thanks so much!
There is no insurance company that offers this type of product. There was a guy on a podcast that referred to insurance, but the website actually called it assurance. It is more like a deed warranty. The website looked very sketchy, so I am not even going to promote it here. Honestly, most people doing subject too have no insurance/assurance type guarantee. Generally speaking if you are paying the loan on time, there will be no issue. Worst case, you just need to find someone to finance the deal if the loan is called.
Awesome Joe, thanks for the input that really helps us out!
How did your subject to process go? Was the loan ever called? Did you ever get the insurance?
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@Dominic Inglese
Out of curiosity, what would you want them to insure against ?
Quote from @Chris Seveney:
@Dominic Inglese
Out of curiosity, what would you want them to insure against ?
I believe it's to insure against the due on sale clause being called. There's a subject-to guru named Pace Morby who claims to be a partner in a company called Equity Assurance where you pay 1% of the purchase price as the premium and they allegedly insure against the due on sale clause, where if it's called they'll refinance the loan for you at the same rate and terms as the existing mortgage. I have no idea if it's legit though.
Unfortunately I don't think such a thing exists. Banks rarely call a loan due for a subject to, but it's simply a risk you have to take.
@Dominic Inglese if you are really really worried about it just purchase on an agreement for sale. The bank would never know because the deed isn't recorded until the loan is paid off. It's not quite as ideal as having title recorded in your name the moment it closes but it is still a decent option.
#1 All Forums Contributor
- Investor
- Virginia
Quote from @Dominic Inglese:
Hello, I am looking to do a seller finance subject too combo deal. We are looking for an insurance company that would provide us with a due on sale clause protection policy. Any referrals would really help us secure this deal! Thanks so much!
I should start a company where insuring it for 5% fee per year and if they call the loan we will pay it off and the borrower would have 90 days to refinance us out or continue to pay us prime + 12%...
The simplest method to circumnavigate the due on sale clause is have the seller put the property into a land trust before you buy, and then transfer the trust to you. This means if you transfer ownership from the seller's name and into a trust, the lender will not be able to demand payment of the entire note. This falls under the Garn/St. Germain Act.
The
Garn–St Germain Act is a federal law that allows lenders to enter
into or enforce contracts, including mortgage agreements, that
contain due-on-sale clauses even if a state’s constitution or laws,
including their judicial decisions, prohibit them. However, the
Garn–St Germain Act lists nine situations in which due-on-sale
clauses are not enforceable, including some transfers that may be
relevant to your estate plan. In the nine situations specified,
lenders may not enforce due-on-sale provisions in real property loans
“secured by a lien on residential real property containing less
than five dwelling units, including a lien on the stock allocated to
a dwelling unit in a cooperative housing corporation, or on a
residential manufactured home.”
If you are interested and want to
know exactly what the law says, as applicable to you, you can read it
here,
https://www.law.cornell.edu/us...
While I agree that transferring to a trust and then later changing the beneficiary is the best method, the exemption for a transfer to a trust specifically requires that the borrower is and remains a beneficiary. So ultimately that code provision is not going to save you if and when the lender calls the loan due.
Had the same questions and concerns. Just found this on National RE Insurance Group: https://nreig.com/insure-subje...