Very Scary Halloween Notes: Due on Sale (Santa?) Clauses
November 1st, 2008 categories: Land Trusts, Seller Financing, Waking Up . . . Almost
In honor of Halloween, I was trying to come up with something scary to write about. And then it came to me . . . the acceleration clause. It’s the language that allows a bank to ‘call’ a loan when and if they find out title has been transferred.
Yes . . . the proverbial, mysterious, vengeful, ever-looming, life-throttling, hatchet-in-the-skull, grave-digging due-on-sale clause is definitely a spook many people find threatening. It’s a (Santa) Clause that could turn into a Nightmare Before Christmas for people trying to put deals together with creative seller financing techniques: subject-to, wrap, etc.
I’ve always proposed that there is a relatively small likelihood of a bank calling a loan these days. It just doesn’t make sense for them to foreclose on a performing asset. Aren’t they busy enough foreclosing on properties where they aren’t receiving the payments???
And that’s when I started having some doubts . . .
Since when does common sense have anything to do with how a bank does business these days? They routinely refuse short sales so they can sell for 50% less as an REO down the road. Yup . . . prescribing the lenders with qualities they do not possess (such as common sense) is probably not a great idea.
What if they desperately need to beef up their reserve requirements one month? Might they go digging for loans they can call in to restore some liquidity? I do know people who have had this happen to them.
So, while I still maintain that there is a relatively small chance that a bank will call a loan in today’s climate, if it’s absolutely crucial to the deal that the existing financing be left in place, then I suggest you use a different vehicle for structuring your transaction: the Equity Holding Trust Transfer System.
Brief comedic interlude:
Now, back to our original programming . . .
As scary as the due on sale clause can be, I have to say that there’s something MUCH MORE THREATENING out there!!!
I get a lot more scared looking at the grocery bill needed to sustain four teenagers . . . they’re like locusts. You think you have a field full of grain, or a refrigerator full of food, and whoosh!! They come through in swarms and decimate the food supply.
So, please be very very careful how many of these you will let live in your house, especially with the upward price pressure on commodities these days.
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Realtors Can Help Sellers Get Top Dollar Using the Equity Holding Land Trust
October 24th, 2008 categories: Land Trusts
“Aloha Dawn,
I had a question for you to see how you might have handled something. My sister in laws’ boss is gong to be selling his
condo here in Hawaii (he lives in LA). I told her about the land trust and she thought he might be interested in it and maybe I could list his house using that approach.
I wrote him an email and gave him an overview of how owner financing, if done properly, might allow him to sell his home more easily in the current market (he wants to list at $1.8 and owes about $800,000). He feels he needs the cash out of the house and has a Realtor friend that he has known for a number of years (knowing the Realtor, it will go on the market overpriced and then slowly be reduced to a realistic level).
How would you have countered his argument that he has a “friend” that is a Realtor. He would have been a perfect OWC type transaction, and knowing his property and its location, he is going to have a hard time selling it even at a reduced price. Thank you for any thoughts you might have.”
Dear Creative Realtor From the Islands,
Putting it in the land trust (offering seller financing) doesn’t mean the seller won’t get all or most of his equity out at close. It’s not hard for me to imagine that a buyer could have a 50% or more down payment and be happy to take over the existing payments (provided that the underlying financing is good). Good jumbos are hard to come by these days.
Sellers that list high and chase the market down always end up losing more money, but it can be hard to help them understand that. Advertising OWC, even if he decides not to carry, will always get him more interest, more offers, and a higher price.
And he needs to use a Realtor, like you, that has a thorough knowledge of seller financing strategies. Most agents just don’t have a working knowledge of the subject and can really do a disservice to their clients by not bringing in a seller financing specialist. Don’t worry, as the weeks stack up, there will be more and more mainstream recognition of the need for creative strategies, then you should be positioned well.
Let him languish on the market for a few months, and then revisit the conversation. Things change!
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When Right Side Up is Inside Out - Saving a Pasadena Escrow with Seller Financing
October 22nd, 2008 categories: Seller Financing, Waking Up . . . Almost
Answer: “Well, because I can.”
Question: “Why do you write totally random quirky posts sometimes? Don’t you want us to think that you’re a respectable professional?”
It is intuitively understood by most people that anyone who goes by ‘Note Queen’ is likely to be eccentric at times. I don’t actually think anyone is surprised at this point. Besides, as one of my teenagers likes to say, “Mom . . . nobody cares.”
So, I got a call over the weekend from husband & wife sellers who had an escrow that was falling apart. They asked if I would please step in to put it back together. It’s hard to think of being asked to do anything that sounds like more fun.
The sellers arranged a meeting with their listing agent, the selling agent, the buyers (and a token boyfriend, I think) and myself, and we all sorted it out to create a great solution for all concerned.
The buyer is getting to buy, the seller is getting to sell, and both agents are going to get their commissions after all. (Because the escrow is not quite closed, I’ll leave the details of the deal for a future post.)
So I’m feeling pretty cool and sophisticated and relevant at this point.
I follow the listing agent back to his office to help him put the seller financing addendum together and do some minor strategizing about how to move things forward expediently. While I’m standing at his computer, working on Winforms, he comes up behind me and says, “Hey, I think there’s a moth on your back,” and he goes to gently grab what turns out to be the tag on my shirt.
And then I realized aloud, “Oh my God! I put my shirt on inside out!” We both had a good laugh. Folks, there are few better ways to impress your peers.
Just another bit of wisdom from the Note Queen. (Please consider donating to the: Help Dress the Note Queen Foundation).
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