#dueonsaleinsurance

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How to Avoid the Due On Sale Clause with Subject To Deals

If you are an investor working with SubTo deals here's what to know…

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What is the due on-sale clause? A due on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due upon the sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance. It allows acceleration if the borrower sells or transfers the real property if the mortgage has not been paid in full. These clauses are intended to protect the lender's security interest in the mortgage.

What does a due on-sale clause do? A due-on-sale clause is a mortgage contract provision enabling a lender to demand the borrower repay the remaining mortgage balance in full if the property is sold or transferred.

In most real estate transactions, a buyer obtains a new mortgage to pay the seller for the house, and the seller uses these proceeds to pay off the remaining balance of their mortgage, taking any excess amount as profit. This essentially forces the seller to pay off their debt before formally transferring the title of the home.

When did the due on-sale clause begin? Banks began inserting “due-on-sale” clauses in their mortgages in the 1970s when interest rates rose dramatically. Home buyers were assuming existing loans rather than borrowing new money from banks because the interest rates on existing loans were lower.

What triggers the due-on-sale clause for a mortgage? A due-on-sale clause is a requirement in a mortgage or other loan agreement that the loan be paid in full if the house or asset is resold. These provisions can be triggered either by an entire sale or partial sale of the debtee's interest in the asset.

4 reasons a lender invokes a due-on-sale clause You try to sell someone a property that you don’t own outright. The lender finds out that you attempted to transfer the property to a new buyer without approval. The lender fears an unvetted buyer would put the loan at risk. The lender believes they can make more money if the new buyer were to apply for a new mortgage.

Buyers Dealing with High-Interest Rates! With some mortgage interest rates as high as 7% many buyers are looking for better options. As a real estate investor using creative financing and working with SubTo deals you can help them. The market for rental properties will increase because fewer people can qualify for mortgages. That opens the door to even more opportunities for investors acquiring properties through SubTo.

Click the link below to get the paperwork to overcome several SubTo deal obstacles including the due-on-sale clause:

TY4R – Paidletter