Selling on land contract with existing lien - HELOC

1 Reply

Hi,

are you able to sell a property on a land contract if there is an existing lien on the property? I heard "yes" so long as the current lender provides approval in writing. However, is the same possibly true of a HELOC? Will it vary from state to state?

any additional info and opinions on this are welcome and appreciated.

cheers

Patrick Britton, Real Estate Agent in WA (#120557)

A HELOC or any other open end loan will have a Due on Sale clause like conventional conforming closed end loans. Even though the deed does not transfer until final payment, the Mortgagee will look at contract for deed or land contract as a conveyance. I could see them not triggering the DOS but closing the open end. In other words, I could see them allowing the LC/CFD but telling the HELOC is no longer open for draw down.

It does not vary from state to state as a matter of function.  Some times HELOCs have a little bit more administrative oversight depending on the Mortgagee so I would recommend disclosing the LC/CFD.  The Mortgagee is more than likely not going to comment back in writing unless they choose to call the note.  Not too often would they send you some type of formal approval.  They would just not saying anything and you would execute the transaction.  That disclosure may provide a position to defend a call of the note in the future.

The risk is lower if the borrower is directly involved and higher if this is from the borrower to you and you to a new buyer.  Unless the Mortgagee allows the transfer specifically there will be a risk they can at their leisure call the note due.