Is Subject to and the due on sale clause a risk worth taking?

[Brian V.]

I just bought 2 courses on Subject to. I'm ready to dive in. I've been studying all the material, methods, contracts, forms, and marketing ideas. Then after all the excitement, I came to a sudden crash--The dreaded "DUE ON SALE" clause.

I don't have much in my life, but I'm comfortable enough. I have a house, a new car, some money in the bank, zero debt except for the mortgage, and a small pension. Because I'm retired, I have unlimited amounts of time to invest.

The problem came up with the due on sale clause. If I have taken the deed subject to the owners financing and put a buyer in a land contract (or lease option) to buy the house, I'm going to have a big problem if the due on sale clause is executed. I don't have a good enough debt to income ratio or spare cash for a down payment to actually buy the house if the loan is called due. Then the bank would forclose, and I would have to break the contract with my buyer, who has given me a substantial down payment or option consideration.

Someone is getting sued, and I think that person is going to be me. The seller could sue me for not making the payments I promised to make. The buyer could sue me because he has a contract that allows him to buy the house. Perhaps even the bank could sue me, I'm not sure.

My question is, since the due on sale clause almost never gets called, is doing this business model a risk worth taking? I want to move forward, but the idea of losing everything doesn't sit well with me or my wife.

[David Dachtera]

@Brian V.,

In general, as long as the payments are made, lenders find little value in asserting DoS.

Some lenders are exceptions, of course.

There is some risk in every REI venture. If you don't "have a plan in case the worst happens", get one. Otherwise, better to find a different strategy.