Due on Sale Discussion/Idea

2 Replies

Hey guys, one of my buddies recently introduced me to an interesting deal structure. Here's my example for discussion:

There's a SFR with a seller with a mortgage who's interested in a Subject 2 deal. Let's say the home is worth $450k and the monthly payment is $2500. I do the deal, take ownership, and I start paying the seller's mortgage payment. At this point, I've acquired the property for just a $2500 monthly payment (awesome).

Then, I decide to turn around and sell the property to a cash and/or conventional mortgage buyer for $450k. IF the due on sale clause is not called, then I walk away with $450k in cash, and I'm still obligated to a $2500/month payment. 

Did I just create $450k in cash out of thin air? Is this possible/legal? How can this go wrong? What happens to the note collateral after I sell the property to the new buyer? Am I doomed because of the Due on Sale clause?

Help me out guys, I'm still new to the game. Thanks in advance for your responses!

Not even close, your buddy doesn’t have a clue....the note/mtg is attached to the Property, when you sell it the mtg has to be paid off because they are Not buying sub2, they are buying “ free and clear”.