Updated over 11 years ago on . Most recent reply
Seller financing vs. Sub 2 and due on sale clause
Hi, I know that the due on sale clause is something to be aware of with Sub2 deals. I also know that people recommend that you do seller financing ONLY on houses owned free and clear.
However, why is that? If people do Sub2's with the possibility (however vague) of DOS clause kicking in, why not do seller financing if there's an existing note?
Would it be because there's a risk that the seller will just pocket the money as opposed to actually paying the mortgage.
One other question: If the seller is paying a mortgage and they have maybe 5-10 years left, is it possible to do a hybrid scenario where you could take it Sub2 for a portion of the sale price and then the rest of the sale price as seller financing?
Any insight would be great. Thanks!
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#3 Guru, Book, & Course Reviews Contributor
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Brian, a Sub-2 is seller financing, the underlying mortgage holder is not extending that balance owing to a Sub-2 buyer, the seller is.
Equity is another amount that can be extended as seller financing, I advocate using a second mortgage arrangement with a lien filed, that does two things, generally blocks the buyer from creating other mortgages and provides recourse for the seller in the event of default.
Is there some reason, some goal to accomplish from changing horses in mid stream? Either way, the buyer is in title, so what would be the point? :)