DUE ON SALE INSURANCE

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DUE ON SALE INSURANCE

Jimmy AlexanderPro Member
Investor · Member since 2021 · 26 posts · 20 votes

So I was listening to BP podcast on my way to work yesterday and heard Pace Morby mention Due on Sale clause insurance. Ive searched the web over the last 2 days and cant find any companies that offer this. Has anyone heard of this before or heard of a company that offers it? Im assuming this would protect me from the DOS clause when I transfer an investment prop from my name over to my LLC...

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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Originally posted by @David C.:

@Sylvia B. That's a good question. How common is it for this clause to be enforced?

It could be that the company offers this insurance because of the low likelihood that the DOS clause will be enforced. Just a thought.

Pace has been doing Subject To for almost two years now from what I can gather. He is in fact advocating a couple of things that are not prudent and I believe are reckless, but that comes from a lack of seasoning. 

I think most of his background is fix & flip for iBuyers and in which he seems to have done well in that arena.  

I've been doing Subject To for 25 years and in several states. I have never heard of Insurance for Due on Sale and I find it improbable that the insurance would actually be honored in the event it was needed. There are a dozen reasons insuring against Due on Sale is a non-winner for the insurance company. 

In 25 years I've had two loans called because of Due on Sale. 

One was in 2006 when someone I bought a house from in 2001 (5 years earlier) sued and claimed he never sold the house.  Later in court he was proven to be a liar, but the loan was called anyway. I had to pay it off. But, that's a long story for another time & Yes, of course I won the case. You learn all of the weaknesses of Subject To when you've been through a few lawsuits.

The second time was in March 2020 when I did a Subject To on a Reverse Mortgage. The house sat vacant because I was busy with a few other flips and just hadn't gotten to it. A homeless "crowd" broke in and started creating problems in the neighborhood. The bank was notified by the police & I received a letter giving me 30 days to pay off the loan or they would start a foreclosure. I simply paid off the loan and life went on.  

In case one, no one is going to have that happen to them. It is an entirely bizarre and psycho event.

In case two, if I had been working on the property or had someone living in it, the squatters would never have been a problem and the bank would never have been called.

 So, had I bought Due on Sale Insurance, (which is like unicorns farting rainbows) the clause that says you can't have done something stupid like let squatters overrun your vacant property or let psychos sue you, would negate the insurance company's need to pay the insurance and I'd have to sue the insurance company for specific performance. And 2 years later and lots of legal fees, the courts would decide who is right. And I'm guessing the "insurance" provider would have a pretty strong case that they don't have to pay out.

There is great reward in using Subject To, legally and ethically and correctly. There is great risk in not knowing what you don't know.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y

    Never heard of it. Sounds fishy.

    If you have a mortgage you don't likely need to transfer it anyway. Just get umbrella policy if your worried.

    9Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y

    There is no such thing.

    4Reply
  • Mike B.
    Rental Property Investor · Madison, WI · Member since 2020 · 91 posts · 71 votes
    4y

    @Jimmy Alexander

    If you re-listen he actually mentioned the name of one such company: Equity Assurance. I believe they’re based in Arlington Texas

    10Reply
  • Jimmy AlexanderPro Member
    OP
    Investor · Member since 2021 · 26 posts · 20 votes
    4y

    @Mike B. I googled them and called yesterday. They said they have never heard of it. Not sure where they were based out of or if there’s more than one company called equity assurance but I’ll check again in the morning 

    1Reply
  • Jimmy AlexanderPro Member
    OP
    Investor · Member since 2021 · 26 posts · 20 votes
    4y

    @John Underwood that’s my plan if I can’t get to the bottom of this mysterious DOS insurance. Thank you!

    0Reply
  • Ken Dunn
    Member since 2019 · 36 posts · 36 votes
    4y

    @Jimmy Alexander - I was surprised when I heard Pace say that on the podcast. I’ve never heard of “Due on Sale” insurance either. Please post back once you learn more details. I’m curious to know if it actually exists or not. 

    Also, I have some properties that I have purchased and/or refinanced under my LLC. Since the lender is a portfolio lender (using their own money) they can be more flexible. They do not care that the loans are in my LLC. Another big benefit is the loans do not reflect on my credit report and, therefore, have no impact on my DTI.

    They do charge a slightly higher interest rate (maybe .25 to .50) but I’ve been able to move my Debt Service Coverage Ratio for my portfolio above 1.5 and soon to be above 1.6…so a little more interest is OK by me.

    You may want to consider using a portfolio lender.

    Cheers,

    Ken

    3Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Try reaching out to Pace. The way I heard the podcast he owns the company. Or at least a share of the company. 

    3Reply
  • Jimmy AlexanderPro Member
    OP
    Investor · Member since 2021 · 26 posts · 20 votes
    4y

    @Ken Dunn sounds like a good idea, how should I get started finding one? I have 2 financing options right now. A loan in my name would be 3.75% 30yr fixed with 25% down with the risk of a DOS clause if I ever want to transfer it over to my LLC. And a loan directly to my LLC for 4.25% 5/1 ARM with 30% down from a small local bank. Thank you for the advice, I'll be spending the next few days hunting down some portfolio lenders.

    0Reply
  • Ken Dunn
    Member since 2019 · 36 posts · 36 votes
    4y

    @Jimmy Alexander - shoot me a PM and I’ll be happy to give you contact info for my portfolio lender in Dallas, TX. I’m not sure they can do loans outside Texas, but it will not hurt for you to ask. He may be able to refer you to another portfolio lender if he cannot help. Cheers - Ken

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y

    @Jimmy Alexander Just talk to your lender.....Fannie Mae now allows you to transfer title to a single member llc, after financing personally. Also, worst case scenario if the DOS is instituted, you have 30 days to cure....simply transfer title back to your name.

    6Reply
  • Brady Hales
    Rental Property Investor · Provo, UT · Member since 2021 · 46 posts · 50 votes
    4y

    Here is their website. They specifically mention the due on sale clause insurance.

    https://www.equityassurance.us/

    9Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    4y

    That kind of insurance makes no sense. If I buy hazard insurance, then set a fire in the house or take a sledge hammer to the pipes, no insurance company is going to pay because I caused the damage intentionally. You aren't going to transfer ownership accidentally, it's always intentional. So why would an insurance company cover a loss that I intentionally caused?

    5Reply
  • David C.
    Accountant · NC · Member since 2017 · 64 posts · 26 votes
    4y

    @Sylvia B. That's a good question. How common is it for this clause to be enforced?

    It could be that the company offers this insurance because of the low likelihood that the DOS clause will be enforced. Just a thought.

    3Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    4y
    Originally posted by @Jimmy Alexander:

    So I was listening to BP podcast on my way to work yesterday and heard Pace Morby mention Due on Sale clause insurance. Ive searched the web over the last 2 days and cant find any companies that offer this. Has anyone heard of this before or heard of a company that offers it? Im assuming this would protect me from the DOS clause when I transfer an investment prop from my name over to my LLC...

    I’ve never heard of anything like that.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y

    @Bill B.  @Ken Dunn @Jimmy Alexander

    I just looked at their site….it doesn’t cover the transfer to an llc. It only covers the Buyer in a wrap mortgage or sub2. The “insurance” is a refi, assuming the buyer is current on everything, you have to use their title company to close the loan, lender’s title insurance and other fees and likely caveats.

    10Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    @Wayne Brooks

    Seems like a good way to make low risk money. 

    1Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    4y

    From their web site:

    What is Equity Assurance?

    Equity Assurance is a Company to help us with almost any Subject 2 transaction which will give you and your seller peace of mind regarding the due on sale clause. This can help you close the sell to a skeptical seller.

    If the due on sale clause gets called Equity Assurance is a Company that will utilize its resources in one of three ways.

    1) Equity Assurance upon your request, can contact the lending institution and inquire about the desire of the lender to enforce the provision if the payments, insurance and taxes are current. Equity will work to resolve this issue so you can continue working with the Mortgage servicer.

    2) Equity Assurance can utilize its capital pool and investor pool to buy the mortgage and have it assigned to Equity Assurance whereas the terms will remain the same.

    3) Equity can offer the outstanding mortgage and note on the secondary market.

    "If it's "insurance" I suspect they should be regulated.

    6Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y
    Originally posted by @Bill B.:

    @Wayne Brooks

    Seems like a good way to make low risk money. 

    Yeah, pay an “insurance” fee upfront, then pay for a refi. 

    2Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    4y

    I’m assuming they only sell their services for particular locations. They want the Investor to close the transactions through their title company.

    1Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    4y
    Originally posted by @David C.:

    @Sylvia B. That's a good question. How common is it for this clause to be enforced?

    It could be that the company offers this insurance because of the low likelihood that the DOS clause will be enforced. Just a thought.

    Pace has been doing Subject To for almost two years now from what I can gather. He is in fact advocating a couple of things that are not prudent and I believe are reckless, but that comes from a lack of seasoning. 

    I think most of his background is fix & flip for iBuyers and in which he seems to have done well in that arena.  

    I've been doing Subject To for 25 years and in several states. I have never heard of Insurance for Due on Sale and I find it improbable that the insurance would actually be honored in the event it was needed. There are a dozen reasons insuring against Due on Sale is a non-winner for the insurance company. 

    In 25 years I've had two loans called because of Due on Sale. 

    One was in 2006 when someone I bought a house from in 2001 (5 years earlier) sued and claimed he never sold the house.  Later in court he was proven to be a liar, but the loan was called anyway. I had to pay it off. But, that's a long story for another time & Yes, of course I won the case. You learn all of the weaknesses of Subject To when you've been through a few lawsuits.

    The second time was in March 2020 when I did a Subject To on a Reverse Mortgage. The house sat vacant because I was busy with a few other flips and just hadn't gotten to it. A homeless "crowd" broke in and started creating problems in the neighborhood. The bank was notified by the police & I received a letter giving me 30 days to pay off the loan or they would start a foreclosure. I simply paid off the loan and life went on.  

    In case one, no one is going to have that happen to them. It is an entirely bizarre and psycho event.

    In case two, if I had been working on the property or had someone living in it, the squatters would never have been a problem and the bank would never have been called.

     So, had I bought Due on Sale Insurance, (which is like unicorns farting rainbows) the clause that says you can't have done something stupid like let squatters overrun your vacant property or let psychos sue you, would negate the insurance company's need to pay the insurance and I'd have to sue the insurance company for specific performance. And 2 years later and lots of legal fees, the courts would decide who is right. And I'm guessing the "insurance" provider would have a pretty strong case that they don't have to pay out.

    There is great reward in using Subject To, legally and ethically and correctly. There is great risk in not knowing what you don't know.

    17Reply
  • Tyler HodgsonBusiness Member
    Investor · Flower Mound, TX · Member since 2016 · 245 posts · 192 votes
    4y

    @Jimmy Alexander - skip the insurance and just get a Fannie Mae conventional loan. See below snip and link to Fannie guidelines regarding Due on Sale exceptions. Just make sure if you get a conventional loan that it's a Fannie Mae loan and not a Freddie Mac loan

    Fannie allows a transfer of the property to: a limited liability company (LLC), provided that

    - the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and 

    - the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

    Source: https://servicing-guide.fannie...

      2Reply
    • David C.
      Accountant · NC · Member since 2017 · 64 posts · 26 votes
      4y

      @Peter Walther thanks for posting this. In reference to each point:

      1. They are acting as an agent on your behalf.

      2. Acting as a private lender.

      3. Selling the loan as any other lender

      I don't see where they are actually "insuring" anything. I haven't read their website at all. Only the information posted in this thread

      1Reply
    • Peter Walther
      Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
      4y
      Originally posted by @David C.:

      @Peter Walther thanks for posting this. In reference to each point:

      1. They are acting as an agent on your behalf.

      2. Acting as a private lender.

      3. Selling the loan as any other lender

      I don't see where they are actually "insuring" anything. I haven't read their website at all. Only the information posted in this thread

      I'd be careful in claiming they're your agent.  I believe that may make you their principal and and possibly liable for their action.

      I assume they would then need to be licensed as a mortgage lender.

      Not sure which loan you're referencing, the loan they bought from the original lender or the loan they arranged to pay the original loan off.

      I agree they may not be acting as an insurer but other posts had made reference to EA as offering DOS insurance and I was observing that if they were they offering insurance they would probably need to be licensed to do so. Tellingly their name is Equity Assurance, not Equity Insurance.

      1Reply
    • Mary M.
      Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
      4y
      Originally posted by @Brady Hales:

      Here is their website. They specifically mention the due on sale clause insurance.

      https://www.equityassurance.us/

      This seems like a scam to me.  

      3Reply
    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      4y
      Originally posted by @Wayne Brooks:

      @Bill B.  @Ken Dunn @Jimmy Alexander

      I just looked at their site….it doesn’t cover the transfer to an llc. It only covers the Buyer in a wrap mortgage or sub2. The “insurance” is a refi, assuming the buyer is current on everything, you have to use their title company to close the loan, lender’s title insurance and other fees and likely caveats.

      EXCATLY Wayne:

      Coverage Criteria

      In order to obtain coverage protecting the Buyer from exercising of the Mortgage's "Due On Sale" Clause through Equity Assurance, LLC for the existing unsatisfied mortgage in the transaction the following must be met:

      1. Mortgage must be current or brought current at the time of closing.
      2. All property tax (county, city, state, school, MUD, etc.) must be current or brought current at the time of closing.
      3. Property insurance must be current or brought current at the time of closing.
      4. Home Owners Associate (HOA) dues must be current or brought current at the time of closing.
      5. Closing must take place at Paradise Settlement Services, LLC d/b/a PSS Title.
      6. Title Insurance must be purchased from Paradise Settlement Services, LLC d/b/a PSS Title.

      From there website.. this is simply a refi and I suspect your paying up front for a refi that may never happen.

      nice money making gig..  I would do this for anyone also under  those terms and conditions EASY MONEY. 

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      4Reply
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