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There's No "Due on Sale" Jail
by Attorney William Bronchick
There is No "Due-on-Sale Jail"
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 which makes it a crime to violate a due-on-sale clause. 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.
But, but . . . isn't It is Unethical or Fraud?
From a legal standpoint, a real estate agent who does not disclose the transfer to the lender has committed no breach of ethics. In fact, some of the standard contracts approved by the California Association of Realtors contain provisions contemplating a "subject to" transfer (see, e.g., form LRO-14, Residential Lease with Purchase Option).
The state bars have no problem with lawyers helping clients conceal a transfer either. In Matter of Sabato, 560 N.E.2d 62 (Ind. 1990), the court found no ethical problem with an attorney helping a client circumvent a due-on-sale provision using a land trust as described above.
Protecting Your Assets
In purchase money states, lenders usually foreclose by Trustee's sale, thereby giving up their right to collect a personal liability judgment. If a lender forecloses through the court, it must first get a judgment before it can go after any of your assets. This does not prevent eager agents in lender collection departments from making absurd statements to try to intimidate you. Don't allow it! Under the Fair Debt Collection Practices Act the collector can be held personally liable for violating said act, and for stating the following:
"If you don't pay, we'll
- Garnishee your wages next week,
- Put a lien on another property you own,
- Take your car for collateral,
- Send the Sheriff out on Tuesday to (various threats)
- Make a report to the police."
These tactics are illegal under the Fair Debt Collection Act!
Items four and five in the above list simply don't happen. There is no such thing as Debtor's prison any more.
Why use Wilshire Holding Group's Fresh Start Program
When you use this program, you do not negotiate or speak to the Lender because you don't own the property!. Refer any and all inquiries to Wilshire's Loss Mitigation Department.
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