Georgia FHA Home Loans - (& Opinion)

Okay, anyone who has read my posts knows I don't pull any punches and, after the exchange I just had with a mortgage broker from Virginia, I feel the need to revisit this just one more time. Funny thing is that this broker is a contributor to "Realty Times". So what. So nothing, really. Poop is poop. There is, however, something odd about this particular event.

His article was teased with how he is fed up with deceptive mortgage ads.

Deceptive mortgage ads. 

His claim to "fame"? Zero cost mortgage loans.

Really ...

I would not even be blogging this had he not posed the question, "What planet are you from?"

Here is the truth, again, about no closing costs:

There Are Costs And The Borrower Pays Them

Is there any doubt about this? Likely not. Borrowers are not the ignorant sheep people like Henry and John hope they are (deduced from the content of their presentations).

You can certainly get a loan without bringing anything to the closing table. You do not, however, EVER get a loan without paying the closing costs. There are closing costs and you pay them.

There are closing costs and you pay them.

There are closing costs and you pay them.

All I want you to realize is there is no such thing as a Zero Cost Loan, No Closing Costs or A Free Lunch.

I'm sure we'll revisit this again in the future.

Love,
Dad

Here is the question from an Active Rain reader, "It sounds like you know a lot about tax liens. Do you know if a person buys a tax lien on a house and if the owner no longer wants the house -- if the tax lien holder is left with having to deal with the foreclosure or if the tax lien holder can hold onto the tax lien until the bank pays them off..."

Since this is a very good question and very misunderstood I believe it should be answered in a public forum. Before we even begin to imply that any answer can be globally accurate please be aware that there are as many different answers as there are states and counties in the union. What is common in every county and state is that what you are buying is not the property but the delinquent taxes.

Yes, you are buying delinquent taxes. You are not purchasing the property.

Another commonality is that because you own the delinquent taxes (or a portion thereof) you are entitled to recovery at the maximum rate of interest before the title can ever be cleared. Because you are in ownership of a government enforced lien you are in possession of a document that has full authority and that lien cannot be removed from title until you provide the release. You are, however, required to accept payment from the deed holder as required by local laws which are far beyond the scope of this blog posting.

Generally you are guaranteed a minimum return of 15% (or more, up to about 35% depending on local laws) on your investment per year. That's not a bad return.

But how do you get the property?

This varies from state to state but my uncle Jim Elkins up in Huntington, West Virginia, created a nice little real estate investment holding simply by purchasing tax liens. He's now in his 80's and divesting his collection but he swears by patience. He would purchase several liens and the ones that were not paid within the legally required timeline did, indeed, become his property. 

Each state has individual tax lien laws. In Georgia the property owner has 1 full year to redeem the tax lien from me, or you, at an annual interest rate of 20%. So, if I purchase a $10,000 tax lien (and I purchase the entire $10,000 lien - not going into it that deeply in this posting) and the property "owner" (title holder) can pay me then I am required to receive their payment of face value plus 20% annual interest. So if it has been almost a full year I get $12,000 and I give them the lien release.

If, however, the full year has passed and I have not received the lien payoff I can start foreclosure and prepare to take possession of the property. All other liens are secondary to mine. This is why lenders really like to have taxes escrowed - it protects them from losing a property in just such a manner. Now, in Georgia, I have to advertise that the property is being foreclosed upon which gives those other lien holders (claimants) the opportunity to step forward and pay the tax lien and redeem their position as primary lien holder. This does not always happen.

Will you ever get a $350,000 property for $12,000? I don't personally know of anyone who has ever accomplished such a feat but I have certainly seen the stories on late night television.

Don't confuse tax liens with tax sales. There are also tax sales which result after a property has been seized because taxes were never paid. This happened to my neighbor when I was a young boy and it was very quickly done. The sheriff came with what appeared to be prisoners and they sat everything from the inside of the house outside of the house and then boarded up every opening on the house. Doors, windows, crawl space, and even the chimney. It took about 2 hours to turn that house inside out. That was back in the 1960's and things are done a little differently here now. But the end result is still the same. (The man who purchased that home moved into it and was elected mayor the following year.)

So what happens to the other liens? What about the mortgage, does it just go away?

Here in my area there is one place to advertise foreclosure intentions and we are required to advertise for three consecutive Thursdays. If no respondents come forward during that 21 day period I can foreclose on the property and it is mine, all mine. Unless, that is, there are other taxes owed on the property. This can happen if I am only a 1/4 buyer of a tax lien. If I purchased 1/4 and the county retained the other 3/4's I still owe the county the remainder of the taxes. Or, if I purchase 1/4 and another investor purchased 1/4 and the county retained 1/2 then every party who holds a share of the tax lien is due their portion.

Because the money I paid at the lien auction went to the county as a payment of taxes I cannot be denied my repayment. It is my due as enforced by the laws of my state and of my county. As far as I know the only way I can lose is if the county uses Eminent Domain and takes the property for county, public use. Some reader can correct me if I am wrong. (I am not a tax lien investor but have studied it and have family and clients who are tax lien investors.)

One beauty of tax liens or tax deeds (depending on your locality) is that once you make the investment the government will handle the collections on your behalf. Essentially, it is one of the only forms of collections that provides you with the full authority of the local government. 

The state of Arizona uses Tax Liens as an investment vehicle. Here is a website I found very quickly by doing a web search http://www.arizonataxliens.com/tax-lien-faqs.php (I do not know these people nor do I offer an endorsement of them or their products)

Remember, you can either buy the delinquent taxes or you can purchase the home with a clear title from a tax sale auction. Also, make sure you fully understand your guarantee and the laws of the area where you are making the investment. All in all I believe in delinquent tax investing I just do not engage in it at this time.

I hope that answered your question. 

Evidence is mounting that the larger lenders seem to have been the most deceptive and are now suffering the greatest consequences. AS a small lender we know that our clients have been repeatedly victimized through being snared by bait and switch tactics from large national lenders who advertise regularly during shows of mass audience including Rush Limbaugh, the Super Bowl and American Idol.

Some even repeat: No one can do what we can do.

Really? Looks like your delinquency rate just cost your founder (who evidently wants to retire) millions or billions of dollars in a sell-out/merger opportunity.

Not too long ago I blogged "Only We Can Do This Loan (And Other Mortgage Pickup Lines)" but that was before the big tumbling house of cards was so prevalent in the news. 

There are big lenders who are truly trustworthy. I don't see them having any of these big problems like Ameriquest, Long Beach (absorbing into WaMu?), New Century (oops!), Wells Fargo (oh gosh, I'm so sorry you're having problems), D.R. Horton (they lost a battle with us over that "preferred lender rewards" crud a couple of years ago - no love loss here), and others.

I've said before and I'll say it again: treat people like trash and you'll soon find yourself in the dumpster in their place. Loan Officers at ALL of these companies have been guilty of misleading advertising, bait and switch tactics and putting borrowers into loans they knew the borrower did not understand and did not have the ability to repay. 

But - WHO CAN YOU TRUST?

Well, there is me. You can trust me. You may not agree with or like the answer but you can trust me. Then there are dozens of other AR members you can also trust. Even if I cannot "do your deal" I'll be honest with you. Here is a short rundown of flags to warn of misleading information from a mortgage lender, broker or originator (loan officer):

1. Nobody else can/will do this loan - right.
2. Guaranteed lowest rates - right.
3. If anyone ever quotes you a rate without taking a 1003 (Uniform Residential Loan Agreement) and examining your credit history any numbers they give you are worthless. Even with the 1003 the rate quote/pricing quote is only as honest as your information.
4. If anyone sends you a Good Faith Estimate (GFE) without taking a 1003 and examining your credit you can pretty much discount the numbers on the GFE.
5. If anyone sends you a GFE without a Truth In Lending (TIL) you better cover your keister because chances are you are not getting accurate information.
6. If anyone tells you there are no closing costs you can automatically make the determination that they are hoping you are an absolute fool.
7. Federally Chartered Bank employees are exempt from state licensing and other regulations which govern mortgage lenders and mortgage brokers.
8. Mortgage lenders are not required to disclose Yield Spread Premium (YSP) to the borrower but mortgage brokers are. Part of the reason is logistics because direct lenders actually work on Servicing Release Premiums (SRP) instead of YSP but a portion of the SRP is treated generally in the same fashion as YSP.
9. If you hear the words "no problem" just do a little reversi and change that to "problem on".
10. Any lender who gives you the impression that they need less paperwork than any other lender can immediately be determined to be misleading you. (* Most lenders offer NO DOC loans, LITE DOC loans and FULL DOC loans. Each lender requires the same paperwork for each loan type.)

You can trust someone who says, "We pride ourselves on providing honest and accurate information to all of our clients so before I give you an answer I want to make sure it is an answer you can depend on. I do not want you to have any surprises along the way and especially not at the closing table. So if you are serious about shopping for a mortgage then I seriously need some information about you."

We also add "We have five fees, those five fees are 1, 2, 3, 4, and 5. Those fees are not negotiable and are the same to everyone. Now, I can do like some other companies do and build those fees into the pricing of the loan or I can leave them out in the open for you to see exactly what you are paying. Unlike that loud mouthed runt here in my town I will never mislead you into believing that the closing costs are not ultimately coming from your pocket no matter how it is disguised." 

Trust a Company That Gives You And Your Client Open Information and Freedom of Choice

Ask the loan officer for other options. Heck, ask the loan officer how long they have been in the business, what they did before they were in the business, if they've ever purchased their own home, how you can improve your credit score. Unlike some folks I believe a Loan Officer should be an expert in their field. Some believe a loan officer is okay just to be an order taker. Uh, no thanks! I want someone handling my $400,000 deal who knows more about the business than my son thank you very much. (Disadvantage, my son knows quite a bit about the industry so maybe that's not fair.)

Interview Your Lender - Every Employee You Speak With

If you don't take time to research and understand the loan product you are being offered and you trust someone you have never met until that phone call and you get stuck in a loan that is fixed for 6 months and then the interest rate doubles every month for the next 5 years and you have a 20 year prepayment penalty on a 7 year balloon: That's YOUR problem. If you don't think this is important enough to you to ask the right questions and know the right answer you probably don't really have enough responsibility to be a homeowner.

Get Education 

You can probably find every answer you need from right here on Active Rain. If you're talking to a lender and you want to know if they are giving you the straight scoop contact me or Brian Brady or Bill Archembault and ASK! I'll give you blind honest opinion. If it's residential I probably don't lend in your state anyone so I have nothing to gain by my response. And if you're in Georgia, Florida or Alaska and you're not using my company already just shame on you!

I have noticed there are some misunderstandings about which cash back at closing is fraud and which is not.

Teri Eckholm recently blogged "Mortgage Fraud - Important Reminders for Buyers, Sellers and Agents" and one of the comments from Neal Bloom which included "jack up the price so that the buyer can get the seller to contribute towards closing costs"

Let's clarify something here: If, during the negotiations for the transaction, the buyer asks the seller if they will contribute the lender allowed closing costs to close the deal and the seller says "yes, if you will pay (for example) $206,000 instead of $200,000 I will contribute $6000 to closing" and - very important and - the appraisal can support that value increase this is not mortgage fraud.

The big litmus test is this: did any of the proceeds of the loan go back to the borrower(s) or to any third party company or unlicensed "locator", "bird-dog", "consultant" (whatever) for any reason? Were there any liens at the closing that were not recorded with the county records department? (Unrecorded liens is an old old trick that just keeps popping up.) Were any contractors paid at closing for work allegedly done on the property?

The above are all RED FLAGS for mortgage fraud. But they are not, by any stretch, the only ones. This posting is only about Cash Back At Closing Defined.

Clarifying another misperception: Just make sure it is on the HUD-1. This will not help. Although it may be a surprise to you there are underwriters, closing agents, mortgage brokers, real estate agents, etc., who will allow red flags to get through closing. That's why 80% of mortgage fraud involves insider collusion.

For several years now during my Mortgage Fraud Detection and Prevention Workshops I have used the example of the popular television show CSI. Where Gil Grissom asks, "what does the evidence say?" I use the same terms only I ask, "What do the documents say?" 

Mortgage fraud is serious, serious business. I have been damaged by mortgage fraud in a very personal way because I have been defrauded. Even though we have very strict guidelines and checks and balances there were times in the past when a couple of files made it through our QC and through our investor's QC. Unknown to the general public when that happens there is a lot of finger pointing and positioning and even legal parrying that can cost the originating lender and the investor thousands of dollars in time and resources. (Just one of the many reasons we keep very detailed records of every conversation, email, fax, etc.)

But what about Builder Incentives?

Personally, as a lender, I do not like them. However, because builders do have such a great profit margin in a hot market it is possible for them to have concessions from their 10% to 30% profit margins. What I do not like about it is the same reason cash back is mortgage fraud: it does artificially increase the loan amount. In other words if the builder was not rebating the buyer buy paying their mortgage payment for 12 months (or whatever) then the sales price and thus the loan amount could be reduced by the same amount as the rebate. Why is this allowed to continue? Probably because it has yet to be challenged in the right way - and everyone involved is making more money because it's a higher sales/loan value.

This is the same thing that makes paying a bird-dog (locator, consultant) from the proceeds of the loan mortgage fraud: it artificially raises the sales price and the loan amount. Here is an example: a real estate broker recently received an offer of $1,800,000 on a home she had listed for $1,400,000 although the appraisal (very recent comps on the same street and all over the neighborhood easily supported the higher value) indicated a value of $1,990,000 - She called me and asked what I thought. I told her I am not paid to think but there is a fish in the cupcake here.

The first thing I would do as a QC agent at a lender is notice the listing price compared to the sales price. Then I would make a note to question the listing agent about other offers. If there were other offers of 1.45, 1.5, 1.55, 1.65 etc., then I could lower that red flag because I knew the property was hot and it was being bid up. However, when I asked if she had received any other offers she said, "no".

Suspecting what was happening I asked to see a copy of the offer letter. There was nothing unusual about it except everything.
1. There was no licensed real estate agent involved
2. The person faxing the offer was not the buyer
3. The buyer lived in California the property was in Georgia
4. The offer was marked as "CASH"
5. There were no previous phone calls or other communications ... just a faxed offer
6. The closing date was requested in 10 days (certainly do-able but unusual)
7. There were no appraisal or inspection contingencies

So here was my list of questions for the offer maker:
1. Who are you to the buyer?
2. If the buyer is in California and the property is in Georgia is this a hold or a flip and if it is a hold who is going to be managing the property?
3. Show me the money - I need a bank certified letter of funds.
4. Why are you offering $400,000 more than the property is worth?

And the response:
1. I am a consultant finding properties for investors.
2. It's a flip.
3. Actually "we're" still trying to get the money together.
4. Oh, my fee is $400,000

Not. Ever. Going. To. Happen.

We called the buyer who's name and address but not contact information was on the offer. It helps to have investigative skills and tools. Once we discovered there was a lender involved and they had pre-approved the deal at $1,800,000 we called the Loss Mitigation Department at the lender. We told the lender and the buyer the entire deal. The property closed with a real offer, a pre-approval letter from a grateful lender at the real price and the involvement of a Georgia licensed real estate agent. Could anyone have been guilty of fraud if this had closed? You bet. The seller, the seller's agent, the loan officer, and the underwriter. The bird-dog? Probably not. Disgusting, eh?

The property was sold at $1,400,000 - nothing paid by the seller except the real estate fees. 

In review here, like it or not, is the short list of what the lender's quality assurance investigation team looks for (in addition to a hundred other things) to discover misrepresentation of the use of the lender's funds:
1. Listing price to sales price
2. Sales history of the subject property
3. Disbursements to any third parties (anyone other than the seller)
4. Mysterious (unexplained) large deposit into the buyer's account
5. Liens to be paid at closing not discovered during the title search

They say history repeats itself about once every 20 years. By gosh I've lived long enough to experience how, at least in some areas, this is true. Had there been blogs 20 years ago we would have been blogging about the Savings & Loan Debacle and using essentially some of the same positions for discussion we're using today. So why are we in this position yet again? Is it because Alan Greenspan did not remember the S&L implosion which cost you and I (at least those of you who actually pay taxes) roughly $125,000,000,000? Now as I wax political I will remind you that in the preceeding years we were under the leadership of one of the most liberal and social minded presidents of recent history, Jimmy Carter. There had been a real estate boom and riskier loans were desired and called for to facilitate the applications being received. Sound familiar?

What we, that would be you and I, Mr. and Mrs. John Q. Public, did not take away as evidenced by this repeat performance, is that lenders who make the decision to offer mortgage financing to weak borrowers are not repaid according to the commitment. Same song, different day.

Economics 101 teaches that your income should always be greater than your total expenses by a ratio of 2.25 to 1. Personally I prefer 3 to 1 but then I am a capitalist and that my plan would not be socially acceptable in the least. Some people cannot even believe that I think everyone should be responsible for their own retirement plan! Gosh, what evil I must have in my heart, eh? But don't you think that if we actually taught our government educated school children the basics of life management it would help many of them? Ah, but then again it's the ones who didn't pay attention in school who also don't pay attention to life ... and the finances it takes to run it.

I have heard it said that if you repeat a saying enough times it doesn't have to be true for people to believe it. Evidently this is true because there are some songs being sung by the media every hour or so that remind me of that radio station that played Ina Gadda Davida for 30 days straight. So let's go back to Economics 101 for just a few minutes. Forget you ever had to take Sociology or American Literature and think business and common sense. The one thing we rarely hear is that the borrowers overleveraged and did not have the ability to meet their obligation. All we hear is that the evil lenders stole the poor sap's equity by putting them into a mortgage they weren't sophisticated enough to understand.

Okay, so that makes the borrower feel better because they are defended by a claim of ignorance? Try using that for a defense in a criminal proceeding. Ignorance is no excuse. And believe me many lenders who may have at first found a need and a way to fill it were soon followed by many other lenders who got in for greed, rode high for 24 months and then bailed out when the buy backs became too expensive. I'm not so thick that I don't believe there was not any greed on the part of the lenders and their investors.

To see the cure, which is what I am constantly writing about, you must look at the originating factor which was, is and always will be that there was a need: people with risk could not purchase a home. The media blasted regularly about the "disenfranchisement of the disadvantaged" which ultimately lead to a few noteable changes to  the quasi-government underwriting and lending policies followed by a handful of sub-prime lenders who knew it was risky and were willing to take that risk while limiting their exposure in the market. The American Dream Home Ownesrhip Program was working. Then came in the new kids, the "gangsta playas", with a hot marketing program and crazy, wild loans.

Once again, education and people accepting personal responsibility would have cured this in a New York second. I'm not going to throw the lenders and their investors under the greed bus all alone. No, most of the borrowers who took advantage of these crazy offers should have known they could not afford to meet these obligations with some very simple 2nd grade math. No, they too, my blog buddies, had greed in their hearts.

Notwithstanding that there is a saturation point to viable home ownership it is possible to maintain numbers of 75% to 80% home ownership but not without educating the borrowers. Even the simplest education such as "divide the amount of your house payment by the total amount of your income and if the resulting number is less than 25% do not take that loan". Even in the lack of this education it is still incumbent upon the borrower to meet their obligations even if they did not understand what they were agreeing to pay!

It's the socialist, entitlement mindset that gives the undeserving the idea that they are being oppressed by the system and deserve the same opportunity under some umbrella of grace that must be funded out of my pocket and your pocket that created this mess ... again. Why be responsible if Ken and Brian, Teri and Leigh, Bryant and Mikey and TLW, are going to be forced to bail you out of every bit of trouble that comes your way? After all, you are entitled to own a home so if you don't make the payments, so what?   

Let's see. What is the socialist agenda? "Everyone deserves equality." The agenda does away with personal responsibility and personal qualification based on your history of risk or the lack thereof. If you've been around long enough it does not take a lightening bolt through your ears to hear how the media would love to see "the replacement of capitalist rule by a genuine workers' democracy that will guarantee full economic, social, political, and legal equality" - excpet where it directly affects their own capitalistic endeavours. It's not a secret that the majority of journalists have hearts that bleed a blood that resembles the arrows of Robin Hood.

I blame that socialist idealogy for allowing people to believe that everyone deserves equality which results in the constant drumbeat of "the rich own property and the poor are cheated out of their 'right' to do so". This ultimately led to governmental and quasi-governmental agencies funding or sponsoring the funding of loans to people who had not proven themselves to be good risks. The capitalists did what capitalists do: they capitulated and capitalized on the model put forth by the government. What they failed to take into consideration was that the government programs are subsidized by taking money from the middle class and re-assiging it to the undeserving (IN MOST CASES) recipients of the government allotments.

Harp on, if you will, that education for the public and freedom for the enterprise is not the answer and you'll see a repeat of this in some other area in some other day. As for now the undeserving have destroyed the opportunity for themselves. Because a few did not, would not or could not meet the obligations they agreed to it's gone for everyone. As for the lenders? Stupid business. As for the investors in the lender's and REIT's? Investment is a risky game and I doubt many direct investors into these stocks weren't fueled by greed (with the exception of investments funded from pools where the pool participants were blind to the final use of their funds). They, too, need not walk away from this without a painful lesson which also reduces the likelihood of a repeat performance.

There are a couple of you who evidently will never fully understand how education is the answer to avoiding the problem in the future and handling the problem today can and must include a bailout by taxpayers. Throwing another few billion dollars onto the existing deficit will certainly bring higher taxes, less re-investment, and another recession. Let the lenders, the borrowers and the investors eat the losses.

PERSONAL RESPONSIBILITY: Go ahead, you can say it. Personal responsibility.

Listen, I know I have started a couple of lively exchanges of idealogy here on Active Rain talking about this subject. If you've read my blogs you know I don't fault the lenders or Wall Street - at least I don't hang them out there to dry all alone - I throw a major portion of the blame on the "why can't we all just get a loan" crowd of equality minded socialists.

This current implosion of non-prime lenders is an example of what happens when otherwise intelligent business people give in to the whines and complaints of the liberal sociopaths who all but dominated the media.

To show my other card I will say those lenders are getting what they deserved for making the decisions they made to offer lending solutions to people who honest to goodness did not deserve them! The truth is the lending industry is a great place for profiling: not on personal appearences, religious beliefs or ethnicity but on their credit profile and financial profile.

People with bad credit do not deserve good loans and anyone who loans money to them deserves to suffer the consequences! (Fortunately it was always my "competition" who did the really crazy stuff.)

If you are not keeping up with it there are 36 major lenders who have dropped off or been sold at distress prices during the last 3 months! Even the big lenders are suffering and drawing back into their shells like hermit crabs under attack.

What can be done to save the industry? Time. Tick, tock, tick, tock.

The indsutry is adjusting. Non-prime won't go away but it will definitely return to pre-2005 conditions where you actually had to have credit and income even to qualify for a street type loan.

Here are a couple of numbers for you:

In 2004 we were one of the few lenders in Georgia where you could get 100% investment financing. We required a middle score of 680 and a DTI of 45% or less, full doc only with 6 months of seasoned reserves. It was only available in a fixed 30 or fixed 15. That was it. We did dozens of loans every month. 

In 2005 our volume dropped sharply and people were telling us there were brokers doing loans for investors with NO DOC (NIVA) down to a 620 middle score. My exact words to my staff were: don't worry, this won't last long. It lasted just about 22 months.

Now there are very few lenders offering anything less than 660 full doc for investors in Georgia although there are still some who allow stated income. My guess is that pretty soon we'll be back to business as usual with good old Novation Mortgage being the only place in town (again) to get 100% investor financing at decent pricing.

A Bone and a Warning 

While I am going to share with you a link which "tracks" subprime lenders in trouble I am also going to tell you that the way it is presented lacks detail and explanation. Before you ASSume the information to be portrayed correctly do your own research. Fremont, for example.  

EDIT: Mikey reminded me that I forgot to give that link http://ml-implode.com/

For many years investment "gurus" have been teaching investors to "acquire properties" without a mortgage, without down payments and without needing to qualify. For many years I have been teaching that this method, while perhaps not a violation of law, is definitely a violation of the mortgage agreement which, by law, puts the mortgage in full default.

Most real estate agents are taught that this is called the "acceleration clause".  The real name for this is the "Due on Sale Clause" and it's in virtually every mortgage agreement with the exception of some commercial loans.

I don't really want to get too deep into this but the reason the Due on Sale Clause exists dates far back into mortgage lending - I was able to find examples well back into the 20th century. Even more recently the reason they are so prevalent today dates back to the late 1970's and early 1980's when interest rates were between 15% and 20%. Every Sunday, during that time, one of my favorite things to do was to get the Sunday paper and circle all the Home For Sale NQNE ASSUME ads. Then I would narrow it down to the area most interesting to me. 

What that little NQ/NE/ASS meant was, "NON QUALIFYING, NON ESCALATING, ASSUMABLE LOAN" and it was golden! It was golden because many of those existing loans were only 10% interest or even less and you could NOT borrow 100% for investment purchases but you could negotiate an NQ/NE with a seller second of the difference between the pay-off and the sales price. Then you just went to a closer and signed the papers and transferred the title/deed.

But as interest rates rose the bankers (there were precious few mortgage brokers at the time) realized they were holding paper at less than they were paying for new debt. They had to do something. So, they stopped issuing NQ/NE/ASSUME loans and starting making the new borrower qualify. That really didn't make enough difference so they wiped out the ASSUME part, too.

However, as the foxes always find a new way into the hen house investors soon decided they just would get the owner to Quit Claim the property to the new buyer and carry on. So, the bankers inserted the Due on Sale Clause which was supposed to frighten the foxes out of the henhouse. It didn't.

For the last few years lenders haven't really been too interested in enforcing the DoS Clause because they've been too busy hanging their assets out on a limb. Now the limbs are breaking and the lenders are covering their assets again. So here is the first MAJOR announcement about DoSC's in a while:

### 

Fannie Mae Single Family
Announcements and Letters
2007 Announcements and Letters
Ann. 07-03: Introduction of the Fannie Mae Single-Family MBS Master Trust Agreement (Announcement 06-27) (03/01/07)

Due-on-Transfer Clauses

Servicing Guide Part I: Lender Relationships; Chapter 2, Contractual Relationship; Section 208.04, Servicer's Optional Repurchase of Certain MBS Pool Mortgages; and Part III: General Servicing Functions; Chapter 4, Transfers of Ownership.

Servicers are reminded that they must enforce the due-on-transfer clause when the mortgage documents include a due-on-transfer clause and the servicer has knowledge that a mortgaged property has been or is about to be conveyed by the borrower in violation thereof, and none of the permitted transfer or other exceptions contained in the Servicing Guide applies. An example of a due-on-transfer violation is when a borrower sells or transfers a property to an unrelated third party without prior approval of the servicer.

### 

What Does This Mean?

It means that servicing lenders who have sold to Fannie Mae but retained servicing will now be required under penalty to FNMA to enforce the Due On Sale Clause which means some "investor held" properties will be served and the loan to be paid off within 30 days or returned to the lender in good condition. 

Do Not Make The Mistake

... of thinking you have some bullet proof plan like an Illinois Type Living Trust to hide behind. The feds are on this situation, too. There will be changes made to trusts over the next few months to put some teeth into the lender's right of redemption. 

Here Is A Sample Due on Transfer Clause

Freddie Mac 3005

18. Transfer of the Property or a Beneficial Interest in Borrower.  As used in this Section 18, “Interest in the Property” means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.

If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument.  However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.

If Lender exercises this option, Lender shall give Borrower notice of acceleration.  The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument.  If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.

And Here is a GREAT LINK For You:

http://www.johntreed.com/dueonsale.html

John T. Reed - I've had people telling me for years I'd like what he says. Now I know why! I do like what he said at least on that page and his "Guru Recommendations" page. 

And here is a good article from 1984 in the New York Times: http://query.nytimes.com/gst/fullpage.html?res=9C01EED9163BF933A25753C1A964948260