March 07, 2014 17:56 Filed in: Tenancy | Deeds
Taking Care of Your Non Married Purchasers– How the Due on Sale Clause Affects You
The scenario presents itself as two non-married purchasers who wish to buy property jointly. Sometimes the buyers are engaged to be married, or have future plans to be engaged. Other times, the buyers may be recent college graduates who plan on living in the property as a longer term "investment". In any event, the commonality is joint ownership under a non-married status where there is a loan involved. The challenge is avoiding issues arising from the lender’s "due on sale" clause contained in the security deed which generally prohibits post-closing deed transfers into non-married parties. Because joint borrowers will generally take title together, problems tend to arise only when there are two "purchasers" but only one "borrower,” meaning only one of them is actually applying for a loan.
Here are a few tips to avoiding a closing crisis:
- Tip 1. Understand your clients' situation. Are the parties applying for joint credit, or will only one party be on the loan? How will the earnest money be paid? And what about the down payment money at closing?
- Tip 2. Raise a level of consciousness in your buyers that their lender has the final "say so" on who is ultimately permitted to be on title. So, a comprehensive discussion with the lender is of absolute importance. For example, some lenders are able to add the name of the second party to the closing and title documents, even though he or she is not a joint borrower.
- Tip 3. Where appropriate, include the names of both purchasers on the contract at the time of the initial offer. This way, the lender will be on actual notice of two purchasers, not just the loan applicant. This will allow the lender to address this special circumstance early in the loan process, rather than it being a surprise at the eleventh hour.
Many people learn of this closing peculiarity only at the last minute when it is too late for the lender to fix. Since it is commonplace to add or remove spouses from title at closing, confusion arises from the mistaken belief that any party can be added to title. Awareness of this type of dilemma can really help in creating reasonable expectations in your clients and avoid the crisis at the closing table!
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