The Pitfall of "Kitchen Table" Closings in "Subject To" Deals

  I have written this article to give my opinion on what is sometimes taught by some seminar instructors on how to conduct “subject to” mortgage transaction closings.

  Some teach that you can and should do "kitchen table" closings.

  What they mean by a "kitchen table" closing is that you must first prepare all the forms and documents at home ahead of time.

  You then contact a notary public and arrange to have him meet you at the seller's home and have them sign the paperwork in their house!

  And while a "kitchen table" closing is technically legal and allowed, I view it as low in credibility and professionalism. I think it lends itself to too many problems down the road if the seller decides to challenge the deal.

  As I mentioned throughout my book, it is incredibly important that the seller feels good and takes seriously the "subject to" mortgage transaction. Having their ongoing cooperation throughout the next several years by making the transaction credible is essential for having a long-lived "subject to" mortgage continue to work for you.

  Making the "subject to" mortgage closing as close as possible to a customary closing with conventional financing goes a long way to communicating the message.

  The sellers leave with a closing packet clearly documenting who did the closing and how it was done with their copies of the paperwork.

  Conducting a "kitchen table" closing in someone's messy home, no matter how well prepared ahead of time, leaves an unprofessional and "unofficial" atmosphere that I do not want sellers to have. It can only lead to potential trouble and conflict with the sellers years later if they ever choose to contest the transaction.

  Customary Closings
  I classify the closings we do with our real estate attorney as a "customary closing" because it is customary to the area we are in.

  In other parts of the U.S., it is customary to have title companies, or even lenders do closings.

  I am a firm proponent of performing customary closings with "subject to" mortgage transactions for credibility and perception purposes.

What Does a "Due-on-Sale" Clause Look Like?

  Contrary to popular belief, there is no such monster in any mortgage document that points to itself with a specific name or label, "due-on-sale clause".

  The infamous "due-on-sale clause" is often the paragraph that discusses "acceleration of the loan."

  Transfer of the Property or a Beneficial Interest in Borrower.
If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.

If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days form the date the notice is delivered or mailed 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.

  This is one "due-on-sale" clause from a Georgia Security Deed (mortgage).

Sale Without Credit Approval.
Lender shall, if permitted by applicable law (including Section 341(d) of the Garn-St. Germain Depository Institutions Act of 1982, 12 U.S.C. 1701j-3(d)) and with the prior approval of the Secretary, require immediate payment in full of all sums secured by this Security Instrument if:

(i) All or part of the Property, or a beneficial interest in a trust owning all or part of the Property, is sold or otherwise transferred (other than by devise or descent), and

(ii) The Property is not occupied by the purchaser or grantee as his or her principal residence, or the purchaser or grantee does so occupy the Property but his or her credit has not been approved in accordance with the requirements of the Secretary.

  The next time anyone refers to the "due-on-sale" clause, you need not wonder about it. You now know the clause does not refer to itself as such. You find the Acceleration clause and go read it for yourself. Don't blindly accept the ideas of others without checking it out for yourself.

  You will be glad you did.

Matthew Chan is the author of "TurnKey Investing with Lease-Options", "The TurnKey Investor's 'Subject To' Mortgage Handbook", and "The TurnKey Investor's Lease-Option Documents Collection".
You may contact Matthew at 706.565.5090 or you can email him at: admin101@turnkeyinvesting.com. You can also find Matthew at MatthewChan.com.