Due On Sale Insurance and Subject To Servicing

5 Replies

On the BiggerPockets podcast episode 527, Pace Morby explained that there are companies that provide "Due on Sale Clause" insurance. I've Googled a bit, but can't seem to find any further information or providers of this. Does anyone have experience with something like this? 

In the same episode, Pace explained that in a subject-to purchase, you can have a service company collect the payments, and in that way the seller's DTI could be relieved of the subject-to payment amount. Can anyone point me in the right direction for this kind of service provider?

I'd love the chance to talk to somebody with experience with any of these tools and strategies.

@Matt Huber this was discussed about a month ago on the forum, but I could not find the thread.  At the end of the day, it sounded like he provides an "Assurance" option of refinancing your loan if the loan is called.

I can say there is not an insurance product for this.  "Intentional Acts" are not insurable.  This is standard insurance language in all policies.

@Matt Huber the company he references is not an insurance company. I forget the name, but the company website was horrible. Half the pages where "coming soon" content. I would steer clear of that company. They seem to be peddling a service that you either don't need or wouldn't cover you if there was a problem. As @Jason Bott mentioned, insurance will not cover you for intentional acts, which in this case is the seller violating their mortgage contract. Odds are good as long as the payments are being made, the bank will not foreclose. Keep in mind that foreclosures result in banks loosing money, so they will avoid it if possible. A due on sale clause is enforced at the banks discretion and generally only if they see financial benefit. If you are doing subject to, make sure you have financing options as a backup plan. There are options out there.

@Jason Bott

Hey Jason! Thanks for the reply. Yes, I understand that such a product would not strictly be defined as "insurance." I was just using the nomenclature that Pace used on the podcast.

Appreciate the feedback!

@Joe Splitrock

Thanks for the info Joe!

The more I look into some of the ideas (strategies?) mentioned on that particular podcast, the more I'm thinking that it was an effort to drive traffic to Pace's courses and mentoring programs. He gave just enough information to find his website, but I can't seem to find anything else to legitimize this.

I understand that, generally speaking, a foreclosure due to title transfer is unlikely, so long as the loan payments are being made. However, the risk of foreclosure could be an area of concern for a seller, and I can see how such an "assurance" product might help close a deal.

Anyhow, I appreciate your comments and suggestions!

Originally posted by @Matt Huber :

@Joe Splitrock

Thanks for the info Joe!

The more I look into some of the ideas (strategies?) mentioned on that particular podcast, the more I'm thinking that it was an effort to drive traffic to Pace's courses and mentoring programs. He gave just enough information to find his website, but I can't seem to find anything else to legitimize this.

I understand that, generally speaking, a foreclosure due to title transfer is unlikely, so long as the loan payments are being made. However, the risk of foreclosure could be an area of concern for a seller, and I can see how such an "assurance" product might help close a deal.

Anyhow, I appreciate your comments and suggestions!

 I would focus on the benefit to the seller. Someone making on time payments every month is building their credit. The protection from default is that the bank will foreclose on the property. Theoretically you have already given the seller a lump sum, so defaulting on the loan would make it a total loss for you as the buyer. Agree on Pace, very much self promotion selling his brand. I first heard of him through paid Facebook ads. I always wonder why people work so hard selling "education" if they are so good at real estate. It seems time would be better spend doing deals versus selling education.