New...i'd like to intro myself and ask......

[Account Closed]

HI,
I am not new to investing, as I trade securities for a living...mostly stocks, bonds, and futures. However, I am new to Real estate investing.

I have a question that has to do with what is essentially considered as gifting a property. We are trying to avoid the infamous due on sales clause. So i am looking for more details in how the lender (chase in this case) communicates with the insurance company. From what I have read, it is during such times that the lender might become aware that the deed does not match the mortgage.

I've also seen it mentioned several times, and my attorney has suggested that many lenders are not enforcing that clause right now. Is this true? could someone tell me from experience? The thing is that it does not seem that I have enough information yet to make an informed decision. I don't want to leave too much to chance.

While most of the ideas I've seen for getting around the clause, have to do with using a revokable living trust, I am thinking that this is not something we should use here, because I don't want it to ever possibly be revoked. I will be living in this house and making payments. Also, privacy is desired. So an IRrevokable trust was the next consideration. The thing with that is, if the lender ever does decide to pry into things a bit, they only allow for REvokable trusts. I figure that in such scenerio, a new Revokable trust could be drawn up by me, (as the settler/grantor this time), and we could present that to the lender. However, does anyone know if they would object to having someone else (me) as the settler/grantor, as that is the person who could ever revoke the trust if they choose to. More over, will they even notice, and/or ever really care?

We really need to know the inner workings of these lenders/insurance companies and how they communicate. Is there a way that this would probably just be overlooked anyway?

And most importantly, when it comes time for escrow to communicate with the insurance company and verify (each year I think) are they going to raise an issue?

There's a few other ideas to add to this, but I'll wait for a response.

[William D.]

Brady, here is the short answer. You are one keystroke away from a non-monetary default notice being sent by the lender to the borrower. You can attempt to play the trust shell game and blur the lines as much as you would like but you cant escape that clause.

The realistic scenario is that people transfer title into LLCs all the time and never get their note called due. The reason is because so long as the note is current THEY DO NOT CARE. Sure, they could call the note due but that would mean they would have to take a performing loan out of their pool and refer it to foreclosure.

From a practical perspective, you are being gifted equity in a property and taking it subject to a mortgage. Assuming you have documentable income and credit you can probably get a low LTV loan (possibly even through the lender!) and cure the default through a payoff with a new loan.

My biggest fear of taking title through a quit claim deed subject to a mortgage is that most likely the owners title policy is voided because of the transfer. Thus, if there were latent title problems that would have been insured up to the warranty deed the title company may not have an obligation to defend you because of the quit claim deed. I would say this is the more realistic danger than the lender calling the loan due and even this issue isn't likely to occur; but, be aware, if you do have title issues you may be 100% on your own.