DUE ON SALE INSURANCE

[Jimmy Alexander]

So I was listening to BP podcast on my way to work yesterday and heard Pace Morby mention Due on Sale clause insurance. Ive searched the web over the last 2 days and cant find any companies that offer this. Has anyone heard of this before or heard of a company that offers it? Im assuming this would protect me from the DOS clause when I transfer an investment prop from my name over to my LLC...

[Account Closed]

Originally posted by @David C.:

@Sylvia B. That's a good question. How common is it for this clause to be enforced?

It could be that the company offers this insurance because of the low likelihood that the DOS clause will be enforced. Just a thought.

Pace has been doing Subject To for almost two years now from what I can gather. He is in fact advocating a couple of things that are not prudent and I believe are reckless, but that comes from a lack of seasoning. 

I think most of his background is fix & flip for iBuyers and in which he seems to have done well in that arena.  

I've been doing Subject To for 25 years and in several states. I have never heard of Insurance for Due on Sale and I find it improbable that the insurance would actually be honored in the event it was needed. There are a dozen reasons insuring against Due on Sale is a non-winner for the insurance company. 

In 25 years I've had two loans called because of Due on Sale. 

One was in 2006 when someone I bought a house from in 2001 (5 years earlier) sued and claimed he never sold the house.  Later in court he was proven to be a liar, but the loan was called anyway. I had to pay it off. But, that's a long story for another time & Yes, of course I won the case. You learn all of the weaknesses of Subject To when you've been through a few lawsuits.

The second time was in March 2020 when I did a Subject To on a Reverse Mortgage. The house sat vacant because I was busy with a few other flips and just hadn't gotten to it. A homeless "crowd" broke in and started creating problems in the neighborhood. The bank was notified by the police & I received a letter giving me 30 days to pay off the loan or they would start a foreclosure. I simply paid off the loan and life went on.  

In case one, no one is going to have that happen to them. It is an entirely bizarre and psycho event.

In case two, if I had been working on the property or had someone living in it, the squatters would never have been a problem and the bank would never have been called.

 So, had I bought Due on Sale Insurance, (which is like unicorns farting rainbows) the clause that says you can't have done something stupid like let squatters overrun your vacant property or let psychos sue you, would negate the insurance company's need to pay the insurance and I'd have to sue the insurance company for specific performance. And 2 years later and lots of legal fees, the courts would decide who is right. And I'm guessing the "insurance" provider would have a pretty strong case that they don't have to pay out.

There is great reward in using Subject To, legally and ethically and correctly. There is great risk in not knowing what you don't know.