Due on sale called what now?

22 Replies

I bought a house approx 9 months ago with sub2, caught the house up paid all the fines etc of 1200 and then I gave the sellers 800. I filed the deed. The bank that has the loan I actually used their meeting room and their people notarized all of the paper work. Now the original seller is going thru chapter 13 bankruptcy and they are calling the note due. The bankruptcy attorney says that I am not in good shape and my attorney says about the same thing and the banks doesnt like things like this. Now I have always kept the loan current since I have a had this property. 

Now I sold it on a lease option in which it is due by july 1st so with the bank saying that they are going to foreclose my worst option is to get the people to buy the house with the lease option but I dont think they have improved their credit enough. My other thought is on July 2nd just quit claim the deed back to the original seller and say hope the bank enjoys the foreclosure.

I also contacted a RE agent about buying this in a short sale but she said since it is not delinquent that it could not be short sold.

What would you do here.

Thanks

I'm in for the answer and solution.

I've always heard that doing a lease option on a subject 2 could backfire.  I would think your buyer could have you return their option fee. I hope it works out for you,

Good luck and keep us posted.  Others can learn form your situation.

This sandwich lease option sounds a lot better when the gurus talk about it, doesn't it?

Hopefully you fully disclosed to your buyers there was a very real possibility that they could lose the house through no fault of their own and that they would have little recourse if it happened.  Because now that its happened you are very likely to end up on the wrong end of a lawsuit.  And those disclosures will help you in court.

Or did you actually sell this?  I can't quite tell from that second paragraph if you've sold it or are trying to sell it.  If you've not yet sold it, don't.   Refinance or otherwise come up with the cash to pay off the loan and then its really yours.  If you have already sold it, that's not an option for you.  It is for your end buyers. though, so they need to scramble around and figure out their financing and complete the purchase.

If you did sell it with a lease/option, try to buy out the option from your tenant/buyer and then refinance.  Or, buy them out so you can give it back to the seller.  That would at least avoid them suing you.

@Chip Chronister You mentioned a short sale.  Is there equity, or not?

I had this happen before. The bank normally will request to be excluded from the bankruptcy once it gets in front of a judge. Until the bank refuses payment, I wouldn't be concerned.  If the bank files for foreclosure, then work it out with tenant.

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Jon the tennants have time to get a loan to make the payoff but I dont think they have the credit to do so.

Wayne there is very little equity here.

Has your attorney given you any advice on how to fix this?

Talk with the lending institution and your attorney to see what options can be worked out. As long the bank is getting there money, they yshouldn't care who it is coming from.

goodluck. I think it's not bad.

Dang... I'm on the fence with a sub2 deal now. Wondering if this BK hadn't hit if you would have been ok. 

Its a rough call but at the end of the day the bank is getting paid, I've fought with Wells Fargo on policies and won before but it tooks months of arguing. This was not on sub2 though. 

Hi

I have done dozens of lease options and sub2 and have never had the bank do this. One the bank even approved me and set up my direct deposit account. What bank person would go to the board of directors and tell them they are going to call a loan due that is current???? I understand the chapter 13 has caused problems but as an investor we fix things right..Good luck..

@Keith Boley

I would imagine that every bank in the world would call a loan due if they had the right to if the borrower has filed bankruptcy. In this case, it appears that the bank was fine with the sub2 sale and everything was moving along smoothly until the seller filed BK. 

@Chip Chronister, 

If you were aware that your seller was going to file BK, you should have immediately contacted the bank to ask them whether or not that was going to trigger the acceleration of the loan. I hope this works out for you and your buyers, but at the very least you will definitely learn something from this experience. Like they say, in this business you are either getting paid or getting educated. 

Originally posted by @Chip Chronister:

Jon the tennants have time to get a loan to make the payoff but I dont think they have the credit to do so.

Wayne there is very little equity here.

 Chip, I trust your are now much wiser in hindsight? With the facts now before us, there does not look to be ANY reason why you (or anyone) should have considered this as a deal in the first place! 

But, many others may now be learning through osmosis, so that's good. Nevertheless, all the best. Hopefully it's NOT all downhill from here...

Chip,

We had this happen. We went to the original seller (person you did the sub to with) and ask the to get the mortgage pulled out of the BK. Tell this will help them rebuild credit without any effort from them. They will need to sign something from the bank, sorry can't remember the name of the form. You may have to educate the opposing attorney a little,  so the stop pushing there client, your seller, to include the property in the bk. We had to deal with BOA to ours out of the BK. If BOA will do it, any bank will.

Wish you the best,

Brian

sounds like you are left with no other option but to refinance it yourself. you need to find a way to get that loan into your name. banks do not like to foreclose. have you contacted the bank about refinancing it themselves? they know you have been making the payments, so they know that you are a better credit risk than the prior owner

@Joseph Picarella  those were great words...you are either getting paid or getting educated....I may put those up on my board...

@Chip Chronister My docs state the DOS so everyone knows, but in almost 13 years of LO's I've never had a DOS called.....I think the issue is the 13 combined with the transfer of title...

Doing a quit Claim doesn't address the underlying loan....only the title....

The seller HAS to provide any and all loans, including the mtg. to the trustee....

Whether he includes them in the 13 is different, but he has to provide them all. 

@Brian Derryberry  has a good idea.

@John Jackson

I wish I could remember where I first heard it, but it has always stuck with me because it is so true. By all means, feel free to use it. 

If it is one of the big 3 banks, I would bet they will still be farting around with this thru July 1. That will have given your Optionee their full contract term and will free you up from a lot of liability with them.  Just keep making the payment.  If the seller hasn't filed yet the Ch13, get them to extend the actual filing date as long as possible.  Good luck!

Originally posted by @Brian Derryberry :

Chip,

We had this happen. We went to the original seller (person you did the sub to with) and ask the to get the mortgage pulled out of the BK. Tell this will help them rebuild credit without any effort from them. They will need to sign something from the bank, sorry can't remember the name of the form. You may have to educate the opposing attorney a little,  so the stop pushing there client, your seller, to include the property in the bk. We had to deal with BOA to ours out of the BK. If BOA will do it, any bank will.

Wish you the best,

Brian

 What Brian said!

and just to push his thought a little further, you can talk with the BK trustee and mention to them that debtor signed the house over to you and that you've been making the payments...usually this is all that is needed and they will remove this creditor from the BK filing.

A hot one for the guru,indeed.Refinancing would get the debt changed from the seller to you still serviced by the income from the lease option.

A hope we all learn and that it works outs well.

Talk to your lawyer. See if you can refi and pay off the loan. Don't sell the property while pending unless they can pay it off.

If the bank let you use there space and notarize the documents then they participated in the closing. I think RESPA should say they knowingly said it was ok. The bank is in more violations than you. Your attorney should have a little heart to heart with them

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