Due on Sale Foreclosure

[Greg Lovern]

Hi all, I'm new at this, trying to get started with pre-foreclosure flipping.

Suppose someone is facing foreclosure, and I have enough cash to reinstate their loan. But not enough to pay off their loan. We come to an agreement for me to buy the house, assume their loan, immediately resell the house, and share the net gain from the equity. Of course that means I have to be able to pay the mortgage payments from the time I buy the house to the time I sell it.

But the lender won't give their approval for me to assume of the loan. Of course they have a due on sale clause. And the loan is for a lower interest rate than they could get today, so the lender is motivated to call the loan and re-lend the money at today's rate.

I buy the house anyway, and one minute later the lender calls the loan. I don't have the money to pay it off. The lender returns any mortgage payments on the loan I attempt to pay.

So my question is, what happens next? Do I get the standard foreclosure timeline? 60 days of being in default before the Notice of Default (Lis Pendens), then another 30 days before the Notice of Trustee Sale, then another 120 days before the auction date? Totaling 210 days from the day they call the loan to the auction date?

Obviously risking foreclosure is dangerous. But if the reason I chose this deal is because the seller has a lot of equity, I should be able to price the house low to sell quickly, and choose a bidder that looks serious and well able to close the sale. It seems to me it should be possible to do that and close well within 210 days. 

And if I can sell the house on the normal real estate market, through a real estate agent, and close the sale before the auction date, for far more than enough money to pay off the loan, is everything good? Aside from the risk of not selling in time and losing the home and having a foreclosure on my record, is there some factor I'm missing that won't allow this to work?

[Andy Mirza]

@Greg Lovern If you're flipping it, you should be good to go. Just make the payments on the loan on time and there's a 99% chance that you'll be able to rehab and sell before the bank even realizes what just happened. If you're dealing with a note investor and not a bank, communicate with them when they reach out to you and you should still be good since they'll like the idea of getting  a full payoff.

If you want to hold this as a rental, be prepared to refinance or sell the property if you hvae to.

And...you wouldn't get a foreclosure on your record, the borrower would. The lender and the borrower have a contract with each other. The lender does not have a contract with you which is why lenders don't like subject to's.