Due on sale was triggered so what should I do?

[Luis Herna]

Here is the scenario:

A. "Subject To" deal on the mortgage

B. 30% equity is seller financed (to be paid in 10 years) 

C. Lender find out and Due-On-Sale Clause is triggered?.  

Here are the questions

1. How can I refinance so I do not have to return the property to previous owner? .

2. Do I have to refinance with current lender or they will deny any refinancing deal with me?

3. Do I have to put any down payment even thought seller has 30% in equity that he is financing to me? 

[James Hamling]

Quote from @Luis Herna:

Quote from @Scott Trench:

I am sorry to hear this happened to you. I am extremely skeptical of many subject to deals even before we get to the due on sale fears - and the fact that many deals were previously NOT called  for due on sale in prior years is not a reliable predictor for what WILL happen going forward in this space. I suspect that if Subject-To becomes more widespread, that due on sale calls will respond in kind.

You have several bad options: 

1) Sell the place

2) Refinance the 1st position debt 

3) Pay off the 1st position debt

I hope that your contract with the seller and/or any wholesaler that brought you this deal allows you recourse for this situation. And, I hope that if you are screwed, you will let us share your story on BiggerPockets as a warning to other investors who think that Subject To is anything other than what it is. 

Subject-To is an extremely high-risk play for anyone not capable and/or comfortable with selling, refinancing, or repaying 100% of all Subject-To debt balances, all at once (if they have multiple). 

To answer your questions: 

The seller financing piece is likely to complicate your refinance. Whether this is a deal breaker or not is a question for other experts on this forum - I don't know the answer. If it's not a deal breaker, then you can likely refinance with any conventional lender or private lender, and the current lender just has to be repaid. 

Your debt to equity ratio will need to meet the lender's terms. That will depend on how they think about the second position note, the value of the property and the loan balance. If your deal is worth less than what you paid for it, then yes, you may well have to bring a lot of cash to the table to refi.

Scott,
In this hypothetical scenario Seller has 30% equity and that I am paying him over time. If the lender calls the loan do I have to put any down payment? Remember there is 30% in equity that is not longer owed by the seller.

Do you not see the answer you gave yourself; seller, NOT you, has 30% equity. 

Anyone financing YOU, only cares what YOUR skin is in this, not what others obligations are other than those obligations add to how much skin you need in it ie down payment. 

To simplify your question your asking how can you get a 100% LTV financing on investment property, or near 100% ltv. You don't, it's just that simple.

A person who's at or near 100% LTV is over-leveraged. That's very big risk. So only viable options is Hard-$ where they charge very big rates and fee's, to make taking on the very big risk worth there while.