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From: moderator
Posted: 2007-10-17 06:18:56
Two points regarding your reply:

First point: It's pretty rare for the two lenders to ever communicate with each other anyway, and when they do, it's usually just one loss mitigator talking to another. Most of them are seriously overworked and underpaid, and really don't care what you're doing. Besides, many of them aren't educated enough to even know what a due-on-sale clause is, or what their remedies would be in the event they should ever see one. And the ones that do know about due-on-sale violations also realize that they're being paid to minimize the bank's losses, not to create new opportunities for exposure to unnecessary risk.

Second point: In over 20 years, I've never seen a lender foreclose over the due-on-sale clause. That doesn't mean they never will, because they certainly can if they want to. But the bottom line is that lenders are in the business of collecting payments, not owning houses.

That said, you should still exercise reasonable caution when doing subject to deals. You should always keep your own financial exposure to a minimum, in case some lender decides they want to accelerate their 5-1/2% interest loan so they can lend it back out at 11%, or some other similar scenario.

Also, if you buy a property subject to, you should always be very careful about making long-term promises to any tenants, lease-option or land contract buyers, in the unlikely event the lender should happen to decide to foreclose your due-on-sale deal at some point in the future. The easiest fix for this is to simply put a clause in your subsequent lease or land contract document that limits your liability to your long-term tenant, lease-option or land contract buyer. Maybe you can limit your liability to an amount equal to a refund of their deposit, downpayment or a few month's lease payments, or whatever. That way, if the lender forecloses, you'll not only have identified in advance your limit of liability (as opposed to letting a judge decide it), you'll also have several months (if you're in a judicial foreclosure state) to use the tenant or buyer's own monthly payments as a funding source to subsidize their refund.

 


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