Bank called my Due on Sale Clause

[Kamil Maras]

Hi, I have been researching creative investing methods for a while now.  Through all of the posts and articles many claim that that banks do not call the loan due if the payments are made and the loan is performing.  
I recorded an Agreement for Deed with the city on my first wrap around mortgage transaction earlier this year.  Everything was smooth sailing until I applied for a new loan on another deal with the same lender.  And here comes an email that I have 30 days to pay off the loan that is being violated with the said transaction.  
My very first attempt at this interesting strategy and the worst case scenario.  Needless to say I will put that strategy to rest and would like to just put it out there that this happens so please have necessary funds to pay off the loan stashed in a separate account just in case.  But doing that I guess defeats the entire purpose of this endeavor.

[John Thedford]

WOW! It does happen. You are 100% correct: you better have the ability to pay in full if they call the note. Lots of guys claim they do wraps, etc and have for years with no consequence. I guess all you need is one savvy banker to catch it and demand payment. As long as you have the funds you are OK (I guess). 

[Kamil Maras]

The banker told me that they do yearly reviews of all loans to check if tax and city records match up.  He would have caught it whether or not I applied for that other loan.  Very disappointing because the strategy in it self is great.  It was a totally hands off investment.  But Hey...

[Brian Gibbons]

@Kamil Maras

You may want to look into property trusts.

See attorney Mark Warda in FLA.

http://www.warda.net/LTSC-2.html

[Kamil Maras]

Yes @Brian Gibbons I did actually switched over all of my properties into trust before hand.  As you're writing this now I'm realizing that I could have just added the new buyer as a beneficiary??  Is that the play?

[Brian Gibbons]

Kamil

Get legal advice re trusts.

From a good asset protection attorney.

Also read Clint Coons JD on BP

[Ryan Taylor]

If they call the loan due, can you not just assign it back to yourself? Or, maybe refinance it in the name of the LLC? .. I see you all mentioning "having the cash to pay". I'd assume most people wouldn't have the cash and would need a creative way to get out of this mess.

Thoughts?

Ryan

[Jon Holdman]

First, folks, this is an older thread.

@Ryan Taylor the property has been sold.  So, no, the seller cannot just assign it back to themselves.  Its not theirs.  Refinancing is not an option, either, because, again, the borrower no longer owns the property.  This is the biggest risk with this strategy as a buyer in this situation.  They buy and make all their payments.  But if the loan is called, and the borrower cannot pay if off as was done here the lender will foreclose.  The buyers would need to refinance to generate cash for the seller/borrower to pay off the called loan.  If they cannot, they will lose the property despite doing nothing wrong.

Trusts may help hide what you're doing.  But they do not prevent the loan from being called.  This is a good example that shows bankers are not as dumb as people seem to think.  They had a process in place for managing their assets (i.e., outstanding loans.)  I suspect a trust would not have helped at all.  They would have seen the trust and poked right through it.

[Edward B.]

@Ryan Taylor, if you could qualify and close another loan within the 30 days that would certainly be an option. After all it is the same as cash to the other lender. I have also heard of lenders giving the borrower the option to remedy the situation, but depending on the language in your contract, they may not be under any obligation to do that. 

[Ryan Taylor]

@Jon Holdman @Edward B.

Thanks for the input. 

Jon - "First, folks, this is an older thread." Should I have done something other than replying to an old post? 

[Jon Holdman]

@Ryan Taylor, no issue with replying to an older post.   Just that when a thread pops to the top folks reply to the OP.  One way or another, the original situation is resolved by this time.