due on sale clause

Due on Sale is there to keep buyers from assuming the mortgage. The idea is that lenders want to get the top interest rate, and this is one way to do it. It also allows them to get closing costs, etc by making buyers go through the lending process on each purchase.

Now, what is the interest rate of their current loan? If it is more than the current rates, they will probably be open to assumption. Also, they may be more willing given the current climate of people defaulting.

Call the lender and find out. The clause is usually "at the option of the lender", so they can opt for or against using the clause.

Don't spend too much time worrying about triggering the due on sale clause. If the loan is performing, especially in this market, the banks are not going to call the loan due. Chances are they may not even find out and if they do they will want to work with you. Don't sweat it. I don't know of one single case where a bank called the loan due.

Thanks for offering some hands on experience with that condition, cbrpower.

Another thing you can do to hide the transfer of the property is to deed the property into a land trust. Then if you decide you don't want to hold the property in a land trust you can deed it into your corporation. Deeding a property into a land trust will not trigger a red flag. But I wouldn't worry about the "due on sale" clause.

when working with lease/options lease/purchases.

I thought this thread might help to answer some of the questions posted the last couple of days.

Rina

A Due on sale clause was added to loans in the 1980s. Lenders added the clause to restrict loans from being assumed. It means when a loan changes ownership the balance is due. Since a Lease/Option doesn't change hands until your "buyer" exercizes his option, no balance is due until then. I hope this is what you meant.

banks(lenders) added the "due on sale" clause was because like a post kind of said earlier, back in 1987-1988 lenders were LOSING their shirts form buyers NOT applying for New Loans because of "loan assumption" due to being able to "assume" an existing loan with a much better interest rate, which in turn, left the lenders with a ton of lost profit.

So, in 1989 they simply decieded to put an end to "loan assumption" buy adding the dreaded "DUE ON SALE" clause, they figured that by adding this buyers would have to go through them "no matter what". Thats the exact reason that you dont hear about banks calling loans due to the transfer of real property or transfer of insurance(which could also trigger the clause). The Bottom Line Is This: As long as the loan stays in good standing(performing loan) and the payments are made on time, and this holds true especially right now with lenders having so many REO's and NON-PERFORMING LOANS, THEY COULD CARE LESS, they are NOT going to call a loan due because the homeowner that stopped making his payments 3 months ago, causing the loan to default, had to find someone that COULD make the payments, resulting in selling the property and putting what was once a NON-PERFORMING LOAN a PERFORMING LOAN back on the books.