Go to Jeff Salisbury LWGate Home Page.From: BOB FORD <BOB_FORD@compuserve.com>
Subject: MORTGAGE RATE VERSUS DUE ON SALE CLAUSE
Date: Sun, 8 Nov 1998 23:06:24 -0500
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Never underestimate the power of the Internet or this list. When I sent my previous post about the interest rates versus due on sale clause on this list and invited people to e-mail me for more information, a lot of people took me up on the offer. At their request I am making it available to everyone. Sorry it is so long. When a mortgage does not have due on sale clause, anyone can assume the loan. A more correct statement is they can buy the property "subject to the loan". That is the lender can not call the loan due when the ownership of the property changes. Once there is a mortgage on a home, the mortgage stays on the home until it is paid off no matter who owns the house. It is the home that secures the loan, not the people that are making the payments. However some states will allow a lender to try to collect from the original borrower if they foreclose and sell the property for less than the amount owed. My state ,California, does not allow this except for government insured loans (FHA, VA, ETC). = When a house is sold, the seller normally gets cash for their equity. That is the home loan amount is subtracted from the sales price and this cash goes to the seller. If the mortgage has a due on sale clause, the lender must also be paid off when a home is sold. = If the mortgage does not have a due on sale clause, the buyer can start making payments on the loan. In this case , the lender does not have to approve the buyer making these payments. The lender has no choice but to accept the new buyers payments. = = Another option is to have the buyer give the seller a "Wrap Around Mortgage" for all or part of the sales price of the home. In this case the buyer pays the seller payments on the "Wrap Around Mortgage" and the seller pays the lender on the original mortgage. = A home with no due on sale clause in the mortgage makes the property very easy to sell and when you sell it, you can get top price. Most people can sell this kind of property without a broker because there are so many buyers to choose from. However, if you plan to sell your home without a broker, I urge you to get legal advice from an attorney in your state. No one likes to pay points and fill out a loan application and the buyers do not do that when the seller finances the sale. This saves you a sales commission although your legal advice will cost you some small portion of the commission you save. I like to sell properties with a low down payment. This gives me the pick of the buyers. I take back a wrap around mortgage for most of the sales price. = The wrap around mortgage will ALWAYS have a higher interest rate than the 1st mortgage. More about why this is good for the seller later. = Because the mortgage does not have a due on sale clause I can get top dollar when I sell and 1 to 2 percent additional interest for up to 30 years on money that was not mine to start with. I had borrowed it. Someone can try to figure the rate of return on that money but you may have a problem because the rate of return is so high. I also collect a prepayment penalty of 6 months interest if the loan is paid off sooner than 30 years which it probably will be. I ALWAYS put a due on sale clause in my wrap around mortgages. Is there any risk in selling for a low down payment? = Sort of. The risk is that the people don't pay the mortgage. However I always get some down payment when I sell a property and each payment lowers the risk that the buyers will not pay the future mortgage payments. If the buyer gets behind in their payments I am very quick to foreclose and sell the property again. You may loose a little time and money getting the property clean and ready to sell but you will gain the loss back soon plus a whole lot more. Wrap around mortgages are a wonderful way to make money. If interest rate have gone up since the first mortgage was created, the new wrap around mortgage for the next buyer will have an even higher interest rate than the previous one. = What you are really doing with a wrap around mortgage is borrowing money a X percent and loaning it at X+2, 3, 4 percent. That is what banks do. Did you ever notice who has the biggest buildings in a town. Could it be the banks? = You will have to hunt for a mortgage broker that will create a loan with no due on sale clause. Most will not. I made a lot of calls until I found one that would create these loans. Once I found one, I give her all of my loan business and refer all of my friends to her. = The best way to get a home loan with no due on sale and all of the other good features is to let the owner finance your property purchases. No fees, no points, and no credit applications are needed when the owner finances the sale of property. If seller wants cash, they can sell the note you give them when you buy the property. I always ask the sellers what they are going to do with the cash I could give them if I buy their property. If they are going to put it in a CD or something like that and live off of the income, I say "A CD will pay you 3 percent. A note I will give you will pay you double that. Are you interested". Often times they are. = If anyone needs more information, let me know. = BOB FORD BOB_FORD@COMPUSERVE.COM I hope this post does not contain a lot of =3D After a lot or research, I found the reason = for the =3D was a problem with some list servers. - -
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