Part I of Our Investor Series:

"How To Insure Seller-Financed Properties"

DON'T FEAR THE 'DUE ON SALE' CLAUSE

Every week I work with buyers and sellers of residential property who are utilizing seller-financing (specifically wraparound mortgages) and trying to obtain the appropriate hazard insurance while at the same time going out of their way not to tip off the underlying lender that a sale has taken place. 

Everyone involved is terrified of somehow notifying the underlying lender and triggering the 'acceleration clause' (referred to as the 'due on sale' clause) found in the underlying mortgage contract. In every case that I have worked with thus far (which are hundreds) this fear is generally uncalled for and it originates more from ignorance about the potential use and implementation of this clause rather than the reality itself.

To begin with, the 'due on sale' clause is, and has for decades been, a common provision in a mortgage document which allows the lender or mortgagee to demand immediate payment in full of the remaining balance of the loan if the mortgage holder transfers the property.  Simply put, a due-on-sale clause is a standard provision in a mortgage or deed of trust that states that the lender has the right to demand that the entire balance of the loan, at the lender's sole discretion, may be called due upon any transfer of the property used to secure the promissory note.  However... 

Upcoming Series Articles

• How To Insure a 'Wrap' Without Tipping-Off The Lender 
• Insuring Property Titled in a Trust (Specifically Wrap-Arounds)  
• Wrap-Arounds: The Problem of Escrow Accounts    
• The 'Standard' Method of Insuring Wrap-Around Properties 
• The Problem of Claims: The Mortgagee Funds Endorsment