REI Wealth Monthly Issue 02 | Page 42

HOW TO INVEST ‘SUBJECT TO’ AND OVERCOME THE ‘DUE ON SALE’ CLAUSE MATT THERIAULT interest rates were rapidly increasing. Instead of taking out new loans… regular Tom, Dick and Due on Sale Mary “home buyer” were assuming the existing loans on homes because the interest rates of those loans were so much lower than new loans. Lenders then started to insert the “due on sale” clause to protect themselves from themselves, citing that they needed this clause to protect their collateral by staying abreast of who was actually living in the properties. B.S.! Lenders only wanted to generate new loans at the higher market interest rates. As time passes, the lender’s actions (or lack thereof) prove this to be so. Lenders haven’t regularly enforced “due on sale” So, what about the long term investors? Are you clauses since the early ’80’s. Why? Because willing to take over a property ‘subject to’ with the interest rates have been on a fairly steady decline risk of the lender busting you? If you’re willing to since then and they’d lose money if they wrote take the “risk,” you have two real viable options on new loans at the lower rates. how to approach it. You can either sneak in the back door, or you can go in the front door By the way, you’re not going to jail for violating the screamin‘ “Honey, I’m home!” “due on sale” clause. Did you hear that Realtors??? It’s not illegal. In order for something Let’s discuss the back door first! It’s ye’ ol’ trust to be “illegal,” there must be a violation of an assignment trick. actual law. There is no federal or state law stating it’s a crime to violate the “due on sale” clause. You see, there’s a loophole that many investors The worst thing that could happen to you is that like to exploit. The Reagan Administration back in the lender exercises their rights under the due-on- 1982 enacted the Garn-St. Germain Depository sale clause and takes the property back, and Institutions Act of which was intended to revitalize even then… they can’t do it inside of 30 days the housing industry by ensuring the availability of (hint!, hint! for the wholesalers reading this), and home loans. Within the act there was a significant even after the 30 days if the property is occupied, consumer benefit included that allowed anyone to the to abide by normal place real estate in their own trust without foreclosure proceedings of which should be triggering the “due on sale” clause. Primarily for enough time for most fix and flippers to execute estate planning reasons, real estate investors their strategy (hint! hint! for the fix and flippers recognized an ancillary opportunity using a land reading this). trust. lender will have