Due On Sale Clause About to Become More Common?

Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes

We haven't seen that many due on sale clauses being enforced by lenders over the past decade or so. At the same time, we're seeing some gurus selling strategies like subto as if there is no risk of triggering a DOSC. More and more investors are looking to assume low-interest loans rather than deal with reduced cashflow thanks to today's interest rates. It was before my time, but my understanding is that triggering a DOSC was more common in the 80's during a similar rising interest rate environment like we find ourselves in now. Lenders are probably more likely to enforce their right to call the loan if they feel their security is at risk in the hands of an unvetted buyer, or they believe they can make more money if the buyer applies for a new loan. It seems like it is becoming good business for lenders to start enforcing (they may actually also benefit by getting these 2-3% interest loans off their books). Are we about to see an uptick in due on sale clause enforcement? Curious to hear what some lenders and folks who have been around a minute think about this...

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Pace Jordan MorbyPro Member

Investor · Tempe, AZ · Member since 2016 · 20 posts · 50 votes

We have had the due on sale clause called 4 times this month... but knowing your way around it is crucial. Either A: revert to a lease option with the option price being the mortgage balance when the option is executed... or B: Use an executory contract instead of SubTo. Land Contract. Contract for Deed. Agreement for Sale etc. I talk about this on my youtube channel.

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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
Quote from @Jay Hinrichs:

Quote from @Andrew Syrios:

While it makes sense for them to call loans with a 3% rate in hopes of getting to lend at 7-8%, I still don't think many are going to be called. For one, few banks are paying that close of attention to that kind of thing. But also, foreclosure rates (while still low) are ticking up and any bank is going to be nervous about calling a loan that might trigger a default.

also there is no Volume of 7 to 8% loans being made volume is way down they start getting tons of payoffs they will have more cash than they can lend out so there is that as well. Its not balance your not going to replace a 3% loan payoff with a 8 % new origination in today market.
Very good point
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Andrew Syrios:

Quote from @Jay Hinrichs:

Quote from @Andrew Syrios:

While it makes sense for them to call loans with a 3% rate in hopes of getting to lend at 7-8%, I still don't think many are going to be called. For one, few banks are paying that close of attention to that kind of thing. But also, foreclosure rates (while still low) are ticking up and any bank is going to be nervous about calling a loan that might trigger a default.

also there is no Volume of 7 to 8% loans being made volume is way down they start getting tons of payoffs they will have more cash than they can lend out so there is that as well. Its not balance your not going to replace a 3% loan payoff with a 8 % new origination in today market.
Very good point

well sometimes I make good points LOL.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforce
good question when my dad started this in the late 70s and I was a new agent working with him. it was all owner carry notes very few banks notes.. as such we never had ONE called that I can remember.

When I started doing this on my own in late 90s and into the 2000s.. we had 2 or 3 called. WE used all the techniques that pace teaches now so none of that is original its all been done many times over many years.. IE written permission to talk to lender.. insurance done the right way etc.. the main thing is we never ever missed a payment. And this is where this will have a lot of issues for this new crop of sub too tribe the book get rich with no cash just do sub too is very dangerous. When the success of the deal is based on paying someone elses note and generating income on the property.. there are going to be many many defaults by those who get into this with no real reserves and their tenant stops paying and trash's the house and the senior debt payments stop.. and or the rob Peter to pay Paul.. taking rent and not paying mortgage because its not in their name. I know any guru would never advocate that of course.. but its going to happen just will.. And you will have sellers with trashed credit and foreclosures because of who they allow to buy their prop sub 2.

Sub 2 is simply not appropriate for beginner investors with limited to no real reserves. Full stop.
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Steve K.
OP
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
3y
Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.
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Steve Duff
Investor · Florida Panhandle · Member since 2020 · 10 posts · 3 votes
3y
Quote from @Steve K.:

Quote from @Steve Duff:

Quote from @Steve K.:

Topical considering tonights events, eh? Gurus will have to switch to a new snake oil.

What events are you referring to please?
There was a slew of virtual assistants/ bots/ spammers creating new profile accounts and posting commercials in the forums for a guru who teaches creative financing especially subject to strategies on Friday night. The moderators have since cleaned it up. Thanks mods!
I see that they may need to clean it up again. Looked at the Gurus page here in this forum and my god, someone must really hate Pace Morbid because I imagine nobody would want to buy his course after seeing all that spam! Get out some bread and make a spam sandwich. Spam spam spam spam (singing along with Monty Python... and giving away my age too!) lol
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Jason Oliver Myles
Investor · Atlanta, GA · Member since 2022 · 6 posts · 6 votes
3y
I think you raise an interesting point. Having said that, I've been investing for over 20 years now and the only time I've seen a lender exercise their right is when something went wrong with the loan. Lack of payment, insurance was improper, tenant occupancy, etc. Of course there are other things that can happen that are out of the investors control such as an internal audit but outside of this, it would be super expensive and time consuming for lenders to randomly review all of there loans without cause. That's a lot of title searches. It's best to let the individual investors make a mistake and then they can swoop in and exercise their right. With more and more people wanting to learn this strategy, it stands to reason that we in the investor community will be hearing more and more stories about how the DOSC ruined someones life. Learn this strategy from someone that is and has been actively investing in sub to deals. There are a lot of pitfalls that many aren't aware of. Just my observation.
3 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

we only did private notes back in the day.. and never thought twice about DOS. but in the late 90s to today when we got going again we sure did.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @JD Martin:

Quote from @Account Closed:

Quote from @Steve K.:

Quote from @Account Closed:

Quote from @Steve K.:

Quote from @Account Closed:

You must not read the news. That’s not how you get clicks. The headline that gets clicks goes something like “Banks get greedy. Force foreclosure on homeowner who paid on time, kick out tenants.”
Guess how worried you get when it’s your bank that’s named and that headline pops up? Imagine you’d share that article with your wife?

We live in a world where PR matters to EVERY business out there. Like it or not.

Couldn't you also see the headlines reading more like "Foreclosures on the Rise as Banks Crack Down on Predatory Investors". That's more like how they usually read these days, isn't it?

Sure, but if I’m writing the story for clicks, I’m using my headline.

The idea of a bunch of top bank execs sitting in a boardroom discussing policy, and making their decision out of fear of backlash from a handful of people in a Facebook group or a theoretical future blurb in the news, is ridiculous.
It starts with a meaningless IG post about a beer can. It ends in a $395M annual loss and entire brand tarnished by political spin. But sure, I’ll take your word for it.

Even using your bud-lite example it's a joke. If we just run with your figures, a $395 million loss is 6/10ths of 1 percent of AbInbev's annual sales. I know it feels like something when you see it on TV and self-proud activists want to bleat about bringing down bud-lite, but the total loss isn't even one percent of their annual revenue, which was about $58 billion (yes, with a "B"). It's almost a rounding error.

This is how you get fooled by media and the presumption that because you see it, it's a lot bigger than what it really is. That's why you think Mr. Morby is a giant whale when in reality he's not even plankton in the investment universe.

This. I have more in funds than Pace Morby has in servicing debt; you've never heard of me. The real whales are different.
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
3y
Quote from @Steve Duff:

Quote from @Steve K.:

Quote from @Steve Duff:

Quote from @Steve K.:

Topical considering tonights events, eh? Gurus will have to switch to a new snake oil.

What events are you referring to please?
There was a slew of virtual assistants/ bots/ spammers creating new profile accounts and posting commercials in the forums for a guru who teaches creative financing especially subject to strategies on Friday night. The moderators have since cleaned it up. Thanks mods!
I see that they may need to clean it up again. Looked at the Gurus page here in this forum and my god, someone must really hate Pace Morbid because I imagine nobody would want to buy his course after seeing all that spam! Get out some bread and make a spam sandwich. Spam spam spam spam (singing along with Monty Python... and giving away my age too!) lol

We are working on it.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Banks had no reason to call notes due. Investors were buying at below 4%. Now that rates have doubled, a bank could call notes due, take the property back at a dramatically increased value, and resell it at 8% to make a huge profit.
Pace talks about SubTo insurance to protect the investor from these scenarios. And you know who sells SubTo insurance? Pace! The guy sure knows how to sell products.
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Roger Paschal
Real Estate Consultant · Fort Worth, TX · Member since 2011 · 45 posts · 39 votes
3y
Quote from @Jason B.:

@David M. unless it is with a portfolio lender which most credit unions and many local banks are. The credit Union my primary home mortgage is through keeps all their mortgages on their books so they would probably be more inclined than others to call it. That being said, what you said makes sense and you have a good point.

I work with several local Banks all over the Country on Subject to's and out of dozens I only had one who had a problem with wraps, never a Subject to, but let me say this, the investor must be educated and be able to answer questions for the Bank. No Bank, Credit Union or Portfolio lender wants to foreclose on any loan if there is a way not to.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Nathan Gesner:

Banks had no reason to call notes due. Investors were buying at below 4%. Now that rates have doubled, a bank could call notes due, take the property back at a dramatically increased value, and resell it at 8% to make a huge profit.
Pace talks about SubTo insurance to protect the investor from these scenarios. And you know who sells SubTo insurance? Pace! The guy sure knows how to sell products.

there is not ta legitimate insurance product for protecting sub to .. at least one offered by a state chartered insurance company.
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Logan M.
Investor · Provo, UT · Member since 2016 · 759 posts · 626 votes
3y
Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

Thanks for sharing this information, very facinating
1 Reply
Logan M.
Investor · Provo, UT · Member since 2016 · 759 posts · 626 votes
3y
Quote from @Jay Hinrichs:

Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

we only did private notes back in the day.. and never thought twice about DOS. but in the late 90s to today when we got going again we sure did.

Is SubTo a major part of your business today?
1 Reply
Steve K.
OP
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
3y
Quote from @Nathan Gesner:

Banks had no reason to call notes due. Investors were buying at below 4%. Now that rates have doubled, a bank could call notes due, take the property back at a dramatically increased value, and resell it at 8% to make a huge profit.
Pace talks about SubTo insurance to protect the investor from these scenarios. And you know who sells SubTo insurance? Pace! The guy sure knows how to sell products.

The Subto insurance company in question "Equity Assurance" doesn't appear to be a real company.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

we only did private notes back in the day.. and never thought twice about DOS. but in the late 90s to today when we got going again we sure did.

Is SubTo a major part of your business today?

no because in Oregon and Washington the best deals sub too were foreclosure rescue which is now basically illegal .. and has been since 2008.. Its too narrow of a niche for us to chase and we tend to be all cash anyway.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

we only did private notes back in the day.. and never thought twice about DOS. but in the late 90s to today when we got going again we sure did.

Is SubTo a major part of your business today?

not a major part but it was pre 08.. probably 10% of the deals we did.
Podcast Guest on Show #222
JLH Capital Partners51 Review
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
3y
Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Steve K.:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Quote from @Jay Hinrichs:

Quote from @Logan M.:

Honestly, if the insurance remains in place I have no idea how they would easily be able to do this nationally.

Utah for example is a non-disclosure state and the county records in 90% of the state are about as old as the time of Noah. It is hard enough to pull PRs in some areas. I imagine a lot of areas maybe not the majority but a lot are in this same bucket.

But like @Pace Jordan Morby mentioned the beauty of real estate is that there are multiple layers dealing in the buddle of rights and ownership so investors will find a way.

do keep in mind there are firms that their entire business is to track mortgages like an actuary and rate them to give the servicers and the banks a read on how many loans could be in trouble when they could be in trouble and how much reserves they need. Lenders are always doing this and are doing it a lot right now as lending tightens and reserves are being bolstered for what many think is going to be a real estate recession. Find information on transfers is kids play for any of these companies. Just have to subscribe to Property Radar for one they track pretty much nationwide. If the banks / note holders want to concentrate on transfers they can do it with ease. And if we start seeing a lot of forclosure action from failed sub too buyers this will hit their radars..

I totally believe you but in my experience at least here in Utah Due on Sale Caluse's being enforced is extremely rare like two or three in an escrow agent's career-type situation. It could be because we are a non-disclosure state or we are small compared to other markets but it is not common here.

Escrow Agents would not be tracking notes being called.. right ? how would they know.. unless someone is doing a refinance and in conversation tells the escrow agent what happened..I have personally done well over 100 sub toos and my dad did over 500 of them when i was a young agent back in the late 70s and into the early 80s when rates were even worse than today this is not something that anyone Myself or Pace made up as a new model. its not. Myself on my own and working with my dad we flipped everything we only bought props with substantial equity that we could resell As fast as possible with my dads company doing mainly wraps as dispo on short term notes .. so the sellers were out of the deals with in 24 to 36 months.. For me it was rare to go over 18 months.. the thought of having someone else mortgage out there for years and years is pretty scary thing that most sellers dont comprehend on the front side of sub 2.

So how many times did you have a Due on Sale Clause enforced
Many banks didn't even had DOS clauses in their contracts in the 70's. It wasn't until the Garn-St.Germain act in 1982 that they started becoming standard. FHA loans didn't contain DOS clauses until 1989, VA loans 1988.

we only did private notes back in the day.. and never thought twice about DOS. but in the late 90s to today when we got going again we sure did.

Is SubTo a major part of your business today?

not a major part but it was pre 08.. probably 10% of the deals we did.

I wonder if he is buddies with Clayton Morris

Let's see, his crimes started in 2017 and ths is 2023 - so, what you do today can get you in trouble at least until 2029.
*************************************************************
"Bergen County influencer and real estate investor charged in multimillion Ponzi scheme"
Pina, who gained fame doing real estate seminars around the country,

https://www.dea.gov/press-releases/2023/10/19/new-jersey-rea...
“As alleged in the complaint, Pina exploited celebrity status and social media to develop a devoted following of potential victims,” Sellinger said in a release. “Promising returns that were too good to be true, Pina allegedly defrauded dozens of people of millions of dollars."

Starting in 2017, Pina began accepting investments from victim investors for the alleged purchase, remodel, and sale of specific real estate projects in New Jersey and other states.

0 Reply
Matt W.
Rental Property Investor · Member since 2018 · 157 posts · 83 votes
2y
Quote from @Account Closed:

@Steve K. I don’t understand why everyone gives so much anxiety to the due on sale clause. There is a simple solution. Just notify your lender of what you are planning on doing ahead of time. If they tell you no, then stop and find a different strategy. If they say yes, then you are golden and can proceed. Communication is easy people. Just communicate and it is not an issue.
Dave, I tried this with my 3 mortgages (attempting to move into LLCs on my attorney's advice, he also said to request written permission) but each lender only would give me a form that you fill out AFTER the fact, notifying them that you have done a transfer. This seems like a huge trap to me. How did you get them to give you permission?
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Account Closed:

Quote from @Matt W.:

Quote from @Account Closed:

@Steve K. I don’t understand why everyone gives so much anxiety to the due on sale clause. There is a simple solution. Just notify your lender of what you are planning on doing ahead of time. If they tell you no, then stop and find a different strategy. If they say yes, then you are golden and can proceed. Communication is easy people. Just communicate and it is not an issue.
Dave, I tried this with my 3 mortgages (attempting to move into LLCs on my attorney's advice, he also said to request written permission) but each lender only would give me a form that you fill out AFTER the fact, notifying them that you have done a transfer. This seems like a huge trap to me. How did you get them to give you permission?
Your attorney said to get written permission so he has something to argue in court if it needs to be done. If you notify your lender, they are obligated to say "no". You will not find a lender that says "yes". There are reasons for that which are beyond this post.

The reality is you can move the proeprties into your LLC without written permission or notifying your lender. You are not violating a law. You are violating an agreement. Those are two very different things. There are solutions to the Due on Sale Situation. Now, should you move it into an LLC? That's up to you.

Uhm..... When contract's (agreement's) are governed by, the law, violating an agreement (breach of contract) would be an unlawful act, would it not?
If it is a breach of contract to do such action, no, it's not true or accurate to say a person "can" do that anymore than it is to say a person "can" rob a bank. Yes, one can do the action but doing it and doing it free of negative repercussions are 2 very different things.
If a person put's themself into a situation where a lender can exercise a DOS, you better have contingency plan's for "if". Assuming it simply won't happen, is failure to plan. Failing to plan, is planning to fail.
Personally, I am not comfortable with anyone hovering an ax over my neck, confident they simply won't use it "cause". It's a finance institute of one form or fashion, they will use it if it's in there best interest, and that means the person who holds the button to drop that ax. Something happens in there job, your head could be the price of there career improvement.
Let's view this another way, a tenant applies to rent who was convicted of burning down a previous landlords property. They have rented 20 others places without incident, only burned down 1. Would you rent to them? Why not? Risk of being the 1, right? Exactly.
0 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
2y
@James Hamling agree very much with the general sentiment, but I think you are conflating criminal law and civil law. Breach of contract makes you liable for damages, but isn't a criminal act.
Does sound like a great way to get sued and lose though.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Jonathan R McLaughlin:

@James Hamling agree very much with the general sentiment, but I think you are conflating criminal law and civil law. Breach of contract makes you liable for damages, but isn't a criminal act.
Does sound like a great way to get sued and lose though.

I get where your coming from on that. But something being civilly illegal does not make it any more legal, illegal is illegal.

And keep in mind, in this day and age, one can argue such an action become criminally liable. For example, stating a component of fraud, or theft by swindle. Or, one the gov. loves to bring in, wire transfer illegal in whatever measure pulling from civil into criminal.

In a SubTo deal, one party argues "no, he told me it was all a-ok and nothing would happen, and now bank is _____, he lied to me, he's a con-man, I was conned", now it's no longer civil is it?

As @Jay Hinrichs said, it's not something to toy with unless someone really knows, not just thinks they know but really truly holds commanding knowledge, and resources, for all facet's of SubTo.

It's playing with plutonium. Lot's of power potential that can go horrifically wrong real fast mishandled.
1 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
2y
agreed.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @James Hamling:

Quote from @Jonathan R McLaughlin:

@James Hamling agree very much with the general sentiment, but I think you are conflating criminal law and civil law. Breach of contract makes you liable for damages, but isn't a criminal act.
Does sound like a great way to get sued and lose though.

I get where your coming from on that. But something being civilly illegal does not make it any more legal, illegal is illegal.

And keep in mind, in this day and age, one can argue such an action become criminally liable. For example, stating a component of fraud, or theft by swindle. Or, one the gov. loves to bring in, wire transfer illegal in whatever measure pulling from civil into criminal.

In a SubTo deal, one party argues "no, he told me it was all a-ok and nothing would happen, and now bank is _____, he lied to me, he's a con-man, I was conned", now it's no longer civil is it?

As @Jay Hinrichs said, it's not something to toy with unless someone really knows, not just thinks they know but really truly holds commanding knowledge, and resources, for all facet's of SubTo.

It's playing with plutonium. Lot's of power potential that can go horrifically wrong real fast mishandled.

Maybe I can clarify this a little Both as a buyer of sub too and a Lender of hard money for many decades.

These transactions are defined by the terms of the Mortgages , Deeds of Trust , or Deed to secure debt or what ever type of debt instrument that is state specific.

And as you read through these documents many are 5 to 20 pages long.. But virtually all of them will have a numbered chapter that is titled EVENTS OF DEFAULT

its under that chapter that we find the following in 98% of all of these security documents. They will read that if the borrower does this: Fails to pay tax's, Fails to maintain the property ( commits waste) , fails to provide insurance or ALIENATES the title.. Alienation of title includes selling the asset or any of the other methods talked about like land contracts transferring equitable interest etc.

Its under the Events of Default Clause that the holder of the note would rely on a remedy. However the event of default just gives the holder or beneficiary of the security interest the RIGHT to accelerate all payments and call the note due.. The holder of the note or beneficiary is NOT obligated to do so..

So just like not paying your tax's or insurance is an event of default just like selling sub too but it is not illegal to not pay your property tax's just gives the lenders certain rights.

The major issues come to play as James pointed out when there is lack of disclosure to the seller and a note does get called and puts them in a terrible position. Along with bad actors using this method to get into props with very little down and then ripping rents and never paying on the mortgage because its not in their name.. I do know 2 people in Oregon that did this and ended up in Prison. I was interviewed by the FBI on one case.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
4 Reply
Matt W.
Rental Property Investor · Member since 2018 · 157 posts · 83 votes
2y
Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jonathan R McLaughlin:

@James Hamling agree very much with the general sentiment, but I think you are conflating criminal law and civil law. Breach of contract makes you liable for damages, but isn't a criminal act.
Does sound like a great way to get sued and lose though.

I get where your coming from on that. But something being civilly illegal does not make it any more legal, illegal is illegal.

And keep in mind, in this day and age, one can argue such an action become criminally liable. For example, stating a component of fraud, or theft by swindle. Or, one the gov. loves to bring in, wire transfer illegal in whatever measure pulling from civil into criminal.

In a SubTo deal, one party argues "no, he told me it was all a-ok and nothing would happen, and now bank is _____, he lied to me, he's a con-man, I was conned", now it's no longer civil is it?

As @Jay Hinrichs said, it's not something to toy with unless someone really knows, not just thinks they know but really truly holds commanding knowledge, and resources, for all facet's of SubTo.

It's playing with plutonium. Lot's of power potential that can go horrifically wrong real fast mishandled.

Maybe I can clarify this a little Both as a buyer of sub too and a Lender of hard money for many decades.

These transactions are defined by the terms of the Mortgages , Deeds of Trust , or Deed to secure debt or what ever type of debt instrument that is state specific.

And as you read through these documents many are 5 to 20 pages long.. But virtually all of them will have a numbered chapter that is titled EVENTS OF DEFAULT

its under that chapter that we find the following in 98% of all of these security documents. They will read that if the borrower does this: Fails to pay tax's, Fails to maintain the property ( commits waste) , fails to provide insurance or ALIENATES the title.. Alienation of title includes selling the asset or any of the other methods talked about like land contracts transferring equitable interest etc.

Its under the Events of Default Clause that the holder of the note would rely on a remedy. However the event of default just gives the holder or beneficiary of the security interest the RIGHT to accelerate all payments and call the note due.. The holder of the note or beneficiary is NOT obligated to do so..

So just like not paying your tax's or insurance is an event of default just like selling sub too but it is not illegal to not pay your property tax's just gives the lenders certain rights.

The major issues come to play as James pointed out when there is lack of disclosure to the seller and a note does get called and puts them in a terrible position. Along with bad actors using this method to get into props with very little down and then ripping rents and never paying on the mortgage because its not in their name.. I do know 2 people in Oregon that did this and ended up in Prison. I was interviewed by the FBI on one case.

Thanks everyone, just to clarify, I'm looking to move my properties into LLCs for the (however thin) liability protection. I'm not into Sub2.
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