All Forum Posts by: Peter Walther

Before deciding whether your loan can be called under a due on sale clause, you or your attorney might want to review 12 CFR 591 which I believe may provide in part:

§ 591.1 Authority, purpose, and scope.

(b) Purpose and scope. The purpose of this permanent preemption of state prohibitions on the exercise of due-on-sale clauses by all lenders, whether federally or state-chartered, is to reaffirm the authority of Federal savings associations to enforce due-on-sale clauses, and to confer on other lenders generally comparable authority with respect to the exercise of such clauses. This part applies to all real property loans, and all lenders making such loans, as those terms are defined in § 591.2 of this part.

§ 591.2 Definitions.

For the purposes of this part, the following definitions apply:

(b) Due-on-sale clause means a contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender's security instrument upon a sale of transfer of all or any part of the real property securing the loan without the lender's prior written consent. For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests.

§ 591.3 Loans originated by Federal savings associations.

(a) With regard to any real property loan originated or to be originated by a Federal savings association, as a matter of contract between it and the borrower, a Federal savings association continues to have the power to include a due-on-sale clause in its loan instrument.

(b) Except as otherwise provided in § 591.5 of this part with respect to any such loan made on the security of a home occupied or to be occupied by the borrower, exercise by any lender of a due-on-sale clause in a loan originated by a Federal savings association shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and borrower shall at all times be fixed and governed by that contract.

§ 591.4 Loans originated by lenders other than Federal savings associations.

(a) With regard to any real property loan originated by a lender other than a Federal savings association, as a matter of contract between it and the borrower, the lender has the power to include a due on sale clause in its loan instrument.

(b) Except as otherwise provided in paragraph (c) of this section and § 591.5 of this part, the exercise of due-on-sale clauses in loans originated by lenders other than Federal savings associations shall be governed exclusively by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by that contract.

While I agree a lender foreclosing because of the due on sale I'm not sure it can't happen.

In addition, assuming you received an Owner's Title Insurance policy when you purchased the properties, if you're going to convey the property to an LLC, make sure the Grantee meets the definition of Insured under the policy. If it does not it probably will not be considered an Insured under the policy.

Did you do the measuring or did you get a survey?  If you got a survey was it done before or after you purchased the property?

You could find an attorney who is also a policy issuing agent, approved attorney or fee attorney for one or more title insurance underwriters.  There can be a concern of conflicts of interests when an attorney tries to both represent a party to the transaction and have one of the above roles.

You got very lucky the problems were resolved that quickly.  I've worked on claims that took years to resolve or if the problem couldn't be resolved, resulted in the insured receiving the amount of the policy.  When you get a policy do you get insurance for your purchase price or the expected value of the property after rehab?

Claims on 25% of your purchases?  I did title insurance claims for awhile so I'm curious, how did you find the claims process?  Were the problems resolved to your satisfaction?

As long as the Grantee entity strictly meets the definition of Insured as shown in your title policy you should not impair the coverage.

What type of documents are you looking for an opinion on?

Good morning Damian, I believe you're in CA so what follows is based on my experience with closings there.  Let me know if I'm mistaken.

I recommend new and old real estate investors join a local real estate investors (REI) group. There you should be able to meet and learn from experienced real estate investors about how your local market works and what the role of the various players in the transaction are.

That said, believe in CA you have escrow agents and title agents.  The escrow agent holds the good faith deposit collects payoff information from the various lien holders and prepares the closing documents.  The title agent prepares the commitment or preliminary report that sets out the requirements needed to be met for the title underwriter to insure the buyer's interest in the property.  The commitment or preliminary report will also set out matters that the policy will not indemnify against, things like restrictions, easements and other matters which may effect title.

The escrow agent then closes the transaction and sees to the recording of the document such as the deed and deed of trust if there is one.  The escrow agent also sees to the payoff interests which are not liens on the property and sends the title agent the funds from the closing needed to pay of liens against the property.  One or the other sees to the recording of the documents which need to be recorded.  When all that is done the title agent issues the title policy or policies.

This is a general overview and there are many variations. As I wrote above, I suggest you join an REI group and learn how local investors have found the process. Good luck.

I understand Chase is now requiring a 700 credit score and 20% down for mortgages and has put a hold on HELOC applications. I'd assume other lenders will consider doing the same.