financing secrets of a millionaire real estate investor.pdf

120 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR
However, if interest rates did rise dramatically, a lender might
enforce the due-on-sale clause at a later time, forcing you to pay off
the loan. If you plan to hold the property for the long term, you should
consider a backup plan for this contingency, such as having the ability
to refinance or sell the property. If there was enough equity in the
property, you could always bring in a partner to put up the cash or refinance
the property.
Is This Legal
Many people are under the mistaken impression
that transferring title to a property secured by a
due-on-sale mortgage is illegal. This is because
most lay people confuse civil liability with criminal
liability. To be illegal, you must be in violation
of a criminal law, code, or statute. There is no federal
or state law that makes it a crime to violate a
due-on-sale clause or conceal it from a lender. If
the lender discovers the transfer, it may, at its
option, call the loan due and payable. If it cannot
be paid, the lender has the option of commencing
foreclosure proceedings. You should also disclose
the due-on-sale issue clearly in writing, particularly
if you are a real estate agent or are dealing
with parties not represented by an attorney.
Convincing the Seller
You won’t find too many sellers willing to hand over their property
without paying off the existing loan, unless the property has no
equity and/or is in foreclosure. Thus, the issue for the seller is: “How
do I know you’ll make the payments” The seller wants finality; he
wants his loan paid off completely and removed from his credit
report.