In Business Since 2001 We accept Paypal
Home for Writers for Publishers Article Directory Article Search
Guides
Article Marketing Secrets
20-Min Article Writing
Author Resource Box
35 Traffic Strategies
Kindle Uploads 101
Fantastic Fiction Decoded


Click Here to
see on Amazon


Site Navigation
Home

Writing Services
+ FAQ

FAQ

+ About Us
+ Blogs
Search Tools
+ Search Our Articles
Article Directory
+ Authors
+ Articles
Other Sites We Own
Writing Puzzle

Professional Book Marketing

Platt Publishing

Marketing Help


 
Article Teaser: The Due On Sale Clause is among the most frequently misunderstood and most-feared legal terms in American contractual law. In this article, we are going to take a look at what it is, what it is not, and how to avoid violating it.

Keep reading below...

Understanding The Due On Sale Clause On Your Home Mortgage

Copyright (c) 2009-2017
(See This Article in its Original Format.)

The "Due On Sale Clause" is among the most frequently misunderstood and most-feared legal terms in American contractual law. In this article, we are going to take a look at what it is, what it is not, and how to avoid violating it.

What Is The Due On Sale Clause?

On nearly every home mortgage and loan contract written in the United States, the Due On Sale Clause is one of those fine print inclusions that a lot of home buyers overlook.

In essence, the Due On Sale Clause is a legal term that means that if a mortgage holder transfers interest in a real property to a third-party, then the bank or other lender has the "right" to call the loan "due in full", and if the mortgage holder cannot pay the loan in full at that time, the bank has the right to foreclose on the property.

It must be noted however that many banks and lending institutions do not enforce their rights in association to the Due On Sale Clause. Banks and lending institutions are "not required" to enforce the Due On Sale Clause, but they have the "right" to do so at their discretion.

Understanding The Foreclosure Process

This is an area that most consumers simply do not understand. In fact, just ten years ago, even I believed that if a home were foreclosed, the bank would hold the property until they could sell it at its full retail value.

But the truth is that banks and lending institutions generally do not make money when they foreclose a property. Instead, most banks will lose tens of thousands of dollars if they are forced to foreclose on a property.

Here is the reason why.

When a bank forecloses a property, they cannot afford to have non-performing real estate on their books. Banks and lenders also borrow money and have debts to service. So a piece of real estate on their books that is not generating an income is contrary to the lenders business model.

As a result, when banks foreclose on a property, they need to sell that property quickly. Foreclosed properties are sent to a sheriff's sale, usually within 90 days of the completion of the foreclosure process.

Now, here is where we get into the dollars and cents of why your lender is going to lose tens of thousands of dollars when they are forced to foreclose your property. The average property sold at a sheriff's auction will only generate 20- to 40-cents return against the retail value of the property!

So, if you have a 40% equity stake in your home at the time of foreclosure and your bank will only be able to collect 20% to 40% of the homes' retail value at auction, your bank is still going to lose 20% to 40% of the retail value of the property at auction. If your home is worth $100,000, you will lose your 40% equity in the property or $40,000, and your bank will lose 20% to 40% of the retail value of the property or $20,000 to $40,000 when they sell your home at auction.

When you begin to understand why a bank or lender would not want to foreclose your home, then you begin to understand why a bank or lender may choose not to exercise its rights under the Due On Sale Clause.

The History Of The Due On Sale Clause

The Due On Sale Clause began to work its way into mortgage contracts during the 1970's. Homeowners who took loans in the 1950's and 1960's were getting really low interest rates on home loans. But, during the 1970's, interest rates began to spiral upwards.

Home sellers who were willing to entertain "creative financing alternatives" to sell their homes began to sell their homes to other parties through Contract For Deed arrangements. This enabled buyers to avoid going to the bank to get new loans, which would require a much higher interest rate than the rate the current homeowner was paying on the home.

The math was easy to follow. The existing homeowner was paying 2% to 4% interest on his or her mortgage. Buyers getting new loans would be paying 8% to 16% to buy the same house. Assumable mortgages were a clear winner for homebuyers, due to the higher interest rates on new loans, and they were a clear winner for home sellers who would be able to sell their homes more quickly to motivated buyers.

Banks viewed the Due On Sale Clause as a method to force buyers into a higher interest rate. So banks began to include the Due On Sale Clause on all mortgage contracts.

Early on, a few states sided with buyers who felt that the Due On Sale Clause was tantamount to predatory lending practices. So in the late-1970's and early-1980's, state governments began to outlaw the Due On Sale Clause.

However, the federal government sided with the banking and savings and loan industries and passed a law in 1982, The Garn-St. Germain Depository Institutions Act of 1982, that made the Due On Sale Clause legal in all fifty states - with a few exceptions defined by the legislation: (http://www4.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00001701---j003-.html)

The Garn-St. Germain Depository Institutions Act of 1982 Exceptions

As with any document filled with legalese, the language can be somewhat confusing, leaving room for interpretation in the law. As a result, many real estate investors operate on the fringes of this legislation, doing things that some people consider legal and other people consider illegal.

In the 27 years since this legislation was passed, the federal government has not taken steps to clarify any of the ambiguity in the legislation. As a result, it is entirely possible to find lawyers who argue for each side of the specific interpretation of the legislation.

Although some elements of this legislation remain ambiguous, some elements of the legislation are crystal clear. (As always, you should consult with an attorney before signing any contract.)

One point that is crystal clear is that any loan written on a manufactured home (mobile home) cannot include a Due On Sale Clause. All loans made on a manufactured home may be assumed by a third-party. Vanderbilt Mortgage, one of the largest lenders on manufactured homes, makes the process super easy. They will send you a credit application for your buyer, and if the person passes credit check, that person can take over your home loan immediately under whatever terms you set.

Another exception includes the ability to sign a lease of up to three years, so long as that lease does not include an Option To Buy.

Allowances for an exception to the Due On Sale Clause have been included to reflect the possibilities of the death of a borrower or a couple getting a divorce.

One more important exception to the Due On Sale Clause has to do with Inter Vivos Trusts. Also called a Living Trust, the Inter Vivos Trust is a legal instrument that permits the transfer of the ownership of the property from the individual to a legal trust, managed by a trustee and held by the homeowner as beneficiary. This was important to note, because many real estate investors use this as a tool to protect the interests of the buyer and seller in the real estate transaction.

If you want to know all of the specifics of this legislation, please refer to the Cornell Law URL included above.

The Due On Sale Protects The Lenders' Interests

Although banks and lending institutions have the "right" to enforce the Due On Sale Clause, most lending institutions will not exercise that right.

Some of the ambiguity that accompanies the legislation regarding the Due On Sale Clause is whether a borrower is required to notify his or her lender of a transfer of interest in a property. While it is fraud and a crime to mislead your lender, some argue that if you don't tell your lender, then you will have circumvented the legal ramifications of violating the Due On Sale Clause. After all, if you don't lie to your lender, then you have not committed any fraud.

The people who take this approach also believe that if the lender never figures it out, then nothing is lost if the buyer continues to make all of his or her payments on time every month.

Personally, I prefer that you play straight with your lender. As someone who buys homes that have a mortgage, it is in my best interest also, if the lender is aware of our intent to do a transaction. I would hate to buy your house under contract, pay on that house for one payment or dozens, and then have your lender discover that you did not tell them that I was buying your house. If your lender calls the Due On Sale Clause after I have worked out a purchase deal with you, then that would be a pain in my you-know-what.

Some lenders will not hesitate to call the Due On Sale Clause, although most are happy so long as they continue to receive on-time payments for the life of the loan.

That is why I suggest always to call your lender with a "If I wanted to" scenario. Don't tell your lender "you did it". Tell your lender before you sign the paperwork "you would like to do it".

Test the waters with your lender before you venture into the deal. Chances are that your lender will agree, so long as the buyer knows that if the payments come late, that the bank may exercise its right to Due On Sale.

One More Note

Someone asked what a Demand Clause was and if it is similar to the Due On Sale Clause. It is similar, but very different. The Demand Clause allows the lender to demand full payment at any time for any reason. With the Due On Sale Clause, then full payment can only be required if the interest in the property changes hands.

In Conclusion

Tens of thousands of deals are done every year, where the mortgage holder sets up a Contract For Deed deal with a buyer, and the lending institution permits the transfer to happen unimpeded - even though the lending institution has the right to stop the transaction at any time under the terms of the Due On Sale Clause.

If you want to sell your home during this housing crisis and credit crunch, your first best bet is to call your lender and have a discussion about "If I wanted to sell my house through a Contract For Deed" scenario.

If your lender says that they would call the note, then you know that this option is not for you. However, if they indicate that they would be happy to let you go through with such a deal on certain terms, then you will know that you have another option for getting out of that house that you do not want anymore.


Author's Note: This article originally published here:
http://www.libertyhomesellers.com/blog/2009/02/due-on-sale-clause/


About The Author: Shop Amazon - Top Gift Ideas
Cory Shrader writes for the Liberty Home Sellers website. Liberty buys and sell homes in Oklahoma and has regular contacts with other real estate investors in many U.S. states, who also offer single-family homes for sale. If you are looking to sell a home, buy a home, or buy handyman specials, please visit our website and fill out the appropriate form on our website: http://www.LibertyHomeSellers.com

Follow "The Phantom Writers" on Twitter (@phantomwriters)
to be notified when new articles are made available.


VOTE ON THIS ARTICLE
Needs Work >> 0 - 1 - 2 - 3 - 4 - 5 << Excellent Article

Tell our authors what you think about their article.



Top-Level Category: Real Estate Articles

10 Most Recent Articles Written by Cory Shrader

Home Financing in a Foreclosure-Heavy Market
Written by: Cory Shrader | Distributed: 2009-02-24 | Word Count: 936 | Page Views: 2582 | Votes: 9 | Rating: 2.89
Getting a home loan from a bank is becoming more difficult with each passing day in today's home marketplace. But, what if you have a good deposit now and you need a home now, not five years down the line or whenever the housing market picks back up? Do you have any options? In short, yes.

Buying And Selling a Home During a Credit Crunch
Written by: Cory Shrader | Distributed: 2009-01-27 | Word Count: 1580 | Page Views: 4113 | Votes: 14 | Rating: 2.21
As President Obama is taking office, many people who had hoped to buy a home in 2008 or 2009 are stressing as to whether a bank will be found, which will finance a home purchase.

All of Author's Articles on this site:

Most Recent "Real Estate" Articles

Amendments to Construction Lien Law in New Jersey
Written by: Steven Nudelman, Esq | Distributed: 2011-07-25 | Word Count: 1136 | Page Views: 2704 | Votes: 3 | Rating: 0.33
Based on a report issued by the New Jersey Law Revision Commision, a revision to the Construction Lien Law was signed by Governor Christie in January, 2011.

Saving Time and Money Working with a Real Estate Buyer's Agent
Written by: Darrell Self | Distributed: 2010-05-06 | Word Count: 926 | Page Views: 2002 | Votes: 4 | Rating: 1.00
Consumers interested in residential real estate too often make the mistake of answering a "homes for sale" ad rather than carefully hiring a buyer's agent to protect their interests and to help them make the best purchase for their needs, tastes, and finances.

How To Buy Real Estate in Mexico
Written by: Fernanda Rodriguez | Distributed: 2009-10-15 | Word Count: 1059 | Page Views: 2720 | Votes: 2 | Rating: 4.50
Buying property in Mexico has become more popular every year. Whether you would like to purchase a vacation home or are planning on retiring there, owning real estate in Mexico is easy and safe. With its incredible natural resources, rapidly improving economy and modern facilities and infrastructure, Mexico is the place to make your dream home a reality. This article will answer most of your questions about buying real estate in Mexico.

Tips About Vacation Villas In Chianti, Tuscany
Written by: Teresa Cambi | Distributed: 2009-10-15 | Word Count: 512 | Page Views: 1905 | Votes: 2 | Rating: 2.50
Travelers who enjoy wine, food, beautiful scenery and a relaxed pace will love Chianti. Not only is the region home to its namesake wine which is one of the most beloved and popular wines in the world, but it is also home to some of the most characteristic farmhouses and villas in Tuscany.

Find The Right Property For Sale In Tuscany
Written by: Alice Migliorini | Distributed: 2009-10-14 | Word Count: 529 | Page Views: 2129 | Votes: 3 | Rating: 3.33
All the basics as far as real estate are essentially the same. If you are buying a condo in Miami or a property in the rolling hills of Tuscany you follow the same road. The road just meanders a little bit more when you deal with purchasing a house in Italy rather than the US.

Sarasota Florida: Top Ten Reasons to Visit in 2009
Written by: John C Allen | Distributed: 2009-08-04 | Word Count: 877 | Page Views: 2904 | Votes: 14 | Rating: 2.57
An abundance of visitors from around the world visit Sarasota each year to enjoy all of the amenities this small city on the Gulf Coast of Florida has to offer. Each year, Sarasota's warm climate attracts "snowbirds" down to the Sunshine State for its high season from January through March. Visitors and residents alike enjoy the city's internationally recognized cultural amenities matching those of the nation's largest cities. A world-class destination, Sarasota, Florida has many reasons to live, work and play in this gorgeous coastal setting.

Longboat Key Florida: How to Make the Most of Your Visit
Written by: John C Allen | Distributed: 2009-07-30 | Word Count: 625 | Page Views: 3039 | Votes: 11 | Rating: 3.18
Longboat Key Florida is an 11-mile long island that borders the Gulf of Mexico to its west and the calm waters of Sarasota Bay on to its east. The 8,000 permanent residents of Longboat Key live in a variety of residential styles from condominiums, townhouses, small single-family homes to luxury waterfront estates. While providing activities such as beachcombing, walking, swimming and fishing, the Key is manicured and secluded allowing a relaxing lifestyle. Longboat Key is known throughout the world for its outstanding beaches, sweeping water views, excellent dining, great weather, luxury lifestyles and don't forget the sensational sunsets.

Lake Toxaway Homes for Sale - Your Dream Home Away From It All
Written by: Alan Nilen | Distributed: 2009-04-30 | Word Count: 472 | Page Views: 2111 | Votes: 4 | Rating: 4.50
Lake Toxaway NC provides quiet living away from it all, with natural beauty wherever you look. It's the perfect place to live, to retire, or just to own that summer home that takes you away from the hustle of your busy life.

Buying Property In Italy On The Cheap
Written by: Fabrizio Giglioli | Distributed: 2009-02-24 | Word Count: 511 | Page Views: 3537 | Votes: 7 | Rating: 2.57
An Italian property expert offers invaluable tips on where to buy the cheapest properties in Tuscany.

Home Financing in a Foreclosure-Heavy Market
Written by: Cory Shrader | Distributed: 2009-02-24 | Word Count: 936 | Page Views: 2582 | Votes: 9 | Rating: 2.89
Getting a home loan from a bank is becoming more difficult with each passing day in today's home marketplace. But, what if you have a good deposit now and you need a home now, not five years down the line or whenever the housing market picks back up? Do you have any options? In short, yes.

Most Viewed "Real Estate" Articles

FHA Loans- Affordability Solutions for First Time Homebuyers
Written by: Jared Martin | Distributed: 2008-06-05 | Word Count: 1131 | Page Views: 7185 | Votes: 27 | Rating: 3.30
This article discusses the features of the FHA loan, both good and bad, and presents the circumstances under which itís a beneficial program to the homebuyer.

Is Downtown Condo Living For You?
Written by: Lynn MacKenzie | Distributed: 2008-02-22 | Word Count: 462 | Page Views: 4786 | Votes: 9 | Rating: 1.89
In the last year there has been an increase in the number of buyers moving into downtown condominiums. With the closeness of amenities and affordable prices it's easy to understand why buyers want to live in a condo for sale in Calgary. Many buyers see condo living as an attractive option because of the traffic congestion nightmares, the longer commuting times and the ever increasing construction of the Calgary roads.

Residential Builders Need to Re-create the Leave it to Beaver Lifestyle
Written by: Catherine Wilson | Distributed: 2006-07-31 | Word Count: 566 | Page Views: 4460 | Votes: 16 | Rating: 2.56
Do you ever wonder where the neighborhoods went that held the picket fences, window boxes brimming with flowers, uniquely designed houses, sidewalks, canopied streets shaded with 100 year old oak trees, front porches, swings and homes placed close enough so that neighbors can be neighbors? In our fast paced, electronic, motorized world a simpler way of live is one that many desire.

Finding Irish Castles for Sale
Written by: Patricia G. McKinney-Lins | Distributed: 2009-01-20 | Word Count: 635 | Page Views: 4262 | Votes: 11 | Rating: 2.18
It is possible to find an Irish castle for sale. If you are determined, patient, and have the resources, you can buy a castle in Ireland. If you do the research and are committed to the project, you can own a very special property!

Buying And Selling a Home During a Credit Crunch
Written by: Cory Shrader | Distributed: 2009-01-27 | Word Count: 1580 | Page Views: 4113 | Votes: 14 | Rating: 2.21
As President Obama is taking office, many people who had hoped to buy a home in 2008 or 2009 are stressing as to whether a bank will be found, which will finance a home purchase.

Mississauga, Ontario Real Estate and Trends
Written by: Brayden Bassett | Distributed: 2007-06-14 | Word Count: 721 | Page Views: 3546 | Votes: 5 | Rating: 2.20
The city of Mississauga, Ontario, Canada, is the sixth largest in that nation. With its relative proximity to the bustling city of Toronto, the population there has just exploded over the past several decades. The standard of living here in Mississauga is high, and therefore there are a lot of amenities which have flourished that provide the residents of the city with a fantastic lifestyle.

Buying Property In Italy On The Cheap
Written by: Fabrizio Giglioli | Distributed: 2009-02-24 | Word Count: 511 | Page Views: 3537 | Votes: 7 | Rating: 2.57
An Italian property expert offers invaluable tips on where to buy the cheapest properties in Tuscany.

Ten Questions to Ask Your Realtor When Buying a Home
Written by: Craig Elliott | Distributed: 2007-10-10 | Word Count: 619 | Page Views: 3486 | Votes: 8 | Rating: 1.88
When buying a home, the questions you ask your realtor are crucial. Your realtor is assisting you with an important financial matter, so you need to be sure that the decision is in your best interest. The following are ten questions you should be asking as you are working with a realtor or before you hire them to assist you.

Foreclosure Property: Homes Up To 30 Percent Off
Written by: Robert Wade | Distributed: 2006-09-13 | Word Count: 329 | Page Views: 3433 | Votes: 7 | Rating: 2.71
The key to real estate investing is acquiring property for a low price and selling or renting for profit.

Is Renting Better Than Buying, In This Economy?
Written by: Mark Felder | Distributed: 2006-07-19 | Word Count: 315 | Page Views: 3425 | Votes: 8 | Rating: 2.13
With the real estate market changing dramatically in the past few years and some regional markets more than doubling in property value, is it a good time to buy property? Consider the factors: real estate has increased in value while interest rates have dropped to record lows.

Highest Ranked "Real Estate" Articles

Why Parties Engage in Real Estate Litigation
Written by: Austen Koberstein | Distributed: 2007-01-09 | Word Count: 712 | Page Views: 2918 | Votes: 7 | Rating: 3.71
Owning a home is a big part of the American Dream. For many people, this will be their ultimate investment. Therefore, it is no wonder that homeowners do not blink twice when it comes to protecting their most valuable possession. These days, real estate litigation is to the property owner, what the mamma bear is to her cub.

Closing on Your Home
Written by: Clint Wooley | Distributed: 2007-01-08 | Word Count: 430 | Page Views: 2603 | Votes: 10 | Rating: 3.50
The closing process of purchasing a home can be one of the most confusing parts. This article is an attempt to help first time home buyers understand the basics of the process to settle fears and anxieties about the process.

FHA Loans- Affordability Solutions for First Time Homebuyers
Written by: Jared Martin | Distributed: 2008-06-05 | Word Count: 1131 | Page Views: 7185 | Votes: 27 | Rating: 3.30
This article discusses the features of the FHA loan, both good and bad, and presents the circumstances under which itís a beneficial program to the homebuyer.

Real Estate Investing: Real Estate - The Hidden Investment
Written by: Robert Wade | Distributed: 2006-07-07 | Word Count: 303 | Page Views: 2510 | Votes: 15 | Rating: 3.20
With REITs and 1031 Exchanges, real estate investing can be confusing landscape. But It's also a fun and challenging opportunity. What exactly is it, and why has it made so many millionaires in this latest boom?

Las Vegas Real Estate: High Stakes or High Gains?
Written by: Mark Felder | Distributed: 2006-08-09 | Word Count: 243 | Page Views: 2517 | Votes: 11 | Rating: 3.18
Las Vegas Real Estate has certainly become a buyer's market in recent months, especially for condominiums. Real estate investors grabbed property at just about any cost during the real estate boom this past year, boosting prices 137 percent over 2000 levels, states USA Today's Noelle Knox...

Longboat Key Florida: How to Make the Most of Your Visit
Written by: John C Allen | Distributed: 2009-07-30 | Word Count: 625 | Page Views: 3039 | Votes: 11 | Rating: 3.18
Longboat Key Florida is an 11-mile long island that borders the Gulf of Mexico to its west and the calm waters of Sarasota Bay on to its east. The 8,000 permanent residents of Longboat Key live in a variety of residential styles from condominiums, townhouses, small single-family homes to luxury waterfront estates. While providing activities such as beachcombing, walking, swimming and fishing, the Key is manicured and secluded allowing a relaxing lifestyle. Longboat Key is known throughout the world for its outstanding beaches, sweeping water views, excellent dining, great weather, luxury lifestyles and don't forget the sensational sunsets.

Are You Suffering From Anemic Profitosis?
Written by: Donna Robinson | Distributed: 2007-03-09 | Word Count: 794 | Page Views: 2665 | Votes: 6 | Rating: 3.00
Is your investment income looking a bit pale and fatigued? Do you become nauseated at the site of your profit and loss statement? Are you itching to sell properties that are losing money? Chances are you're suffering from a lingering case of anemic profitosis.

Home Financing in a Foreclosure-Heavy Market
Written by: Cory Shrader | Distributed: 2009-02-24 | Word Count: 936 | Page Views: 2582 | Votes: 9 | Rating: 2.89
Getting a home loan from a bank is becoming more difficult with each passing day in today's home marketplace. But, what if you have a good deposit now and you need a home now, not five years down the line or whenever the housing market picks back up? Do you have any options? In short, yes.

How You Can Benefit from All The Foreclosures
Written by: Bob Johnston | Distributed: 2008-11-05 | Word Count: 957 | Page Views: 2106 | Votes: 12 | Rating: 2.75
Foreclosures are at an all time high and people are getting scared. One look at the markets over the last few weeks will tell you the tale. Is it possible that a person could actually prosper in times like these? Are there opportunities in the foreclosure market that we are missing? It is possible; there have been many people who started their fortunes during tough economic times.

Foreclosure Property: Homes Up To 30 Percent Off
Written by: Robert Wade | Distributed: 2006-09-13 | Word Count: 329 | Page Views: 3433 | Votes: 7 | Rating: 2.71
The key to real estate investing is acquiring property for a low price and selling or renting for profit.












Download an eBook today
 
Directory Navigation
Locate By Author

Locate By Category:
ALL Categories
Arts & Crafts
Arts & Entertainment
Automotive
Business - Offline
Business - Online
Career
Computers
Education
Family
Finance
Food & Drink
Health & Wellness
Home & Garden
Humor
Internet
Nature & Pets
Real Estate
Religion
Self Improvement
Shopping
Society
Sports & Recreation
Technology
Travel & Leisure
Uncategorized
World Events
Writing & Speaking

Change Number of Results:
50 - 100 - 200 - 500
Article Reprint Rights
Creative Commons License

This work is
licensed under a
Creative Commons
License


You are not required to show the creative commons license notice when you reprint this work.
Article Publishing Tools
Print Article
Email-to-Blog
HTML Source Code
Text Newsletter Format
Link Back HTML

Blog Publishing Tools

Internal ID: #6539
Article Statistics
Word Count: 1835

Total Views: 6195

Article Rating: 3.61 of 5
Votes Cast: 18

More Articles By Author:




Article Title Search:

Widow Search
Right Blinker
Google
Yahoo!
Zuula
Bing
Cuil

Last Distribution Date:
2009-02-04 12:00:00






All Articles are Copyright © 2001-2017 of the Defined Authors.

All other material and images on this site are:
Copyright © 2001-2017, ThePhantomWriters.com