Is Subto legal?

[Eyal Goren]

I read that every mortgage has a Due on Sale clause, which means you have to notify the lender when you sale the property and pay the entirety of the loan when you sell the property. 

How do people work with the clause and make these kinds of deals?

[Jay Hinrichs]

Quote from @Eyal Goren:

Quote from @Mitch Messer:

Quote from @Eyal Goren:

I read that every mortgage has a Due on Sale clause, which means you have to notify the lender when you sale the property and pay the entirety of the loan when you sell the property. 

How do people work with the clause and make these kinds of deals?

First, let's be very clear here.

The mortgage your speaking of is a private agreement between the seller and the lender. The "due on sale" clause (DoSC) obligates the seller to notify the lender if the property is sold.

Failing to do so would place the seller in violation of this agreement, giving the lender the right to accelerate the loan.

But no laws are being broken here.

So, subto is neither legal nor illegal.

Second, it only works because most lenders are more interested in receiving payments than in invoking the DoSC clause and foreclosing on the property.

But, it can work, provided seller and buyer are both on board and the proper process is followed.

Thanks for the clarification. What happens if the lender does accelerate the loan? I guess the seller would like to address that in the agreement. 

If you dont pay the loan off it goes to foreclosure and the original owner gets their fico CRUSHED.  its highly risky for most mom and pops to sell on sub to.. and its simply not a way for those without substantial wherewithal to buy property and keep the seller safe.. Lots of absolute nightmares come out of sub to when folks get into title but dont have the money to pay the loan off or the ability to refi.