"Am I correct, your system requires the sale be kept secret from the loan company? What happens when they find out? Since the buyer is getting an "equitable interest in the property" in Texas that makes it difficult to cancel him out in the event of default. I am not a closed mind Nay sayer. If you have reasonable answers please let me know."

If you do the following ...

• Contract of Sale
• LORA (My special contract that stands for "Lease Option Rental Agreement)
• Contract for Deed - or any other similar names
• Lease Options
• Rent to Own
• Owner Financing

... there are people that just don't get it! They have been given the WRONG information about the "due on sale" clause. Now it's time to get the RIGHT information and clear up any "fuzzy" thinking.

1. Every one of the methods listed above are positively, absolutely legal. Are there any exceptions? Yes! Some deeds of trust - usually state loans - may contain a clause that the owner may not even rent the property. What's the solution? Don't buy houses with state loans.
2. Here's another question I get every day. Do you have to keep everything a secret from the lender? That's a biggie. The answer is, NO, you do not. In fact, the opposite is true.

   When you buy a property on a Contract of Sale, the most PRUDENT THING TO DO is contact the lender. That's what I do. I tell the lender that I purchased the property and to add my company name to the monthly statement and change the mailing address. I tell the lender to send the statement directly to my company or else they won't get paid.

   Below is a page from my best selling book for Realtors, "Insider Secrets for Real Estate Professionals." You can see three statements from three different lenders are addressed to me/my wife (George/Arlene Paukert) and my companies.


3. Here is more misinformation I hear all the time. The second you record any document and change the status of the property, the lender will accelerate the "due on sale" clause. Below is one of the many e-mails I receive on the subject:
   

   Now let's use some LOGIC, my friends. There are some lenders out there who do 20-30 million loans a year. There are 1,000's of recorders offices all over the country. That means a big lender like Bank of America would need a few full time employees at every Recorder's Office to watch every recording. Let's expand this further. That would mean ALL lenders would need employees in each and every Recorder's Office all over the country. Since there are at least 10,000 lenders - big and small - that would mean there would be an additional 10,000 people in each Recorder's Office!

   The fact is, you can record anything you want at the Recorder's Office. All the recorder is interested in is the FEE you have to pay to record whatever you want to record. So you understand the process of recording, you can print this web page, probably 3 pages printed, bring it to your Recorder's Office, pay $5 - $20 per page and you can have it recorded!!

4. Another piece of misinformation people send me day in and day out: The lender will accelerate the loan if you do ANYTHING to the property, loan, ownership, transfer, etc.

   The answer is simple. NONE of the creative financing methods I listed above CHANGE THE TITLE. Therefore, there is no reason for any lender to call any loan!

   There were two cases in California and one in Arizona in the last 30 years where lenders tried to accelerate the due on sale clause. In all cases, the lender LOST. The judges said very simply that if the buyer's income can cover the payment and the payments are being made on time, the lender is not being harmed and, therefore, cannot foreclose.

   Let me take a moment and save you thousands of dollars. There are "geniuses" out there who will sell you a land trust for $2,000 - $3,000. You put the property into the land trust with the original seller as the beneficiary. Then, in order to change the ownership, you change the beneficiary. I don't want to say that this won't work, but why pay that kind of money when it isn't necessary? The only trusts that are worthwhile are estate planning trusts but they have nothing to do with the due on sale clause. That's what you need when you own a lot of real estate and have a great many assets.

I even called 20 of the best loan officers in town, most of them were personal friends. I asked each of them to give me the answer to the question: What is the procedure to accelerate a loan?

None of these loan officers was sure about the answer. Why? In order accelerate the loan, the lender must begin foreclosure proceedings and must prove to the court that harm has been done and the lender is in financial danger. Foreclosing on a home when the payments are current is like climbing Mount Everest with only one leg!

There is something else to consider. For a lender to start foreclosure proceedings, they must hire attorneys, go to court and file complaints. The starting costs for such action could be $10,000. Law suits are expensive! Then, it could take 5-10 years and cost $20,000 or more before they are finished. And there is no guarantee that the lender will receive a satisfactory judgment. So, the logic is: Why would a lender "burn" money on a property on which all payments are made in full and on time? Think about it. It makes no sense.

I am referring to situations when the title actually changes as in a "wraparound mortgage." This is an obvious reason to trigger the "due on sale" clause because the original borrower is 100% removed from the property because an actual deed is recorded to change title. I still believe that nothing will happen - see my remarks above about the recorder's offices and the lenders needing 1,000's of employees sitting there and watching EVERY recording. Next to impossible!

I had purchased my personal residence on a wraparound mortgage because I wanted the property in my corporation's name. As usual, I contacted the lender and had no problem with them. Now, I don't suggest you use a wraparound mortgage. Just stay with the Contract of Sale or LORA.

The lender gets involved when troubles start.

1. The number one problem is late payments - or worse - NO payments. Sooner or later the lender will be looking for money. The lender doesn't really care who pays - as long as somebody pays.
2. The buyer or seller files bankruptcy. The contract should spell out exactly what will happen and how to handle it. However, the bankruptcy laws are there to protect the person who filed - not the creditor. No bankruptcy will let anyone stay in the house without making payments. No such luck.

   If you bought the property on a contract from a seller who later files bankruptcy, you will have to be involved and show the court the paperwork to prove the seller no longer owns the house.

   If you sell the house to a buyer who later goes bankrupt, you can hold the buyer to the contract and evict him, or you can work with him.

3. Drugs is another problem. This is a big problem for everyone - the lender, the homeowner, and the investor or landlord. The government can seize the home just on suspicion of drug dealing - no proof needed. Each state has different laws. This is very serious, so check out your particular state. Even if you are renting the house out, the government can still seize it.

   So, it is not the "due on sale" clause that can get you but the marijuana you didn't know the buyer was selling. Make sure - as best you can - that both your buyer and seller are drug-free!

By the way, I just received an e-mail from a lender who said I am a genius for developing my real estate system. I wouldn't go THAT far, but I understand what he is talking about.

You see, if you have too many rentals, you will not be able to obtain a new loan - no matter how good your credit is and no matter how many assets and/or cash you have. (I believe your ability to qualify stops after 5 loans.) My program helps people who are now in this predicament. The lender I just mentioned, has clients in this situation. There are a total of 35 rental properties to be converted into sales!

Frankly speaking neither the lenders nor the US government want you to be rich. They don't want you to own too many houses. Using my "Million $$$ Secrets" program, YOU CAN!

This explanation should take care of all the nonsense about the "due on sale" clause, loan acceleration, and the legality of creative financing.

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