Dp2, I thought that bringing in wraps would just complicate matters more. Also called wraparoundmortgages(AITD). Glad to here from another investor who can think out of the box about the many ways of creative RE.
Herb

Although Ed & Cindy, and Kim are technically correct that either a lease option or land contract COULD trigger an acceleration clause, they usually don't in actuality--especially now. Typically, the only time a bank will exercise a due on sale clause is when it feels less secure about a loan. Stated another way, as long as the mortgage, insurance, taxes, and HOA fees (if applicable) are kept current, then banks rarely--if ever--opt to exercise their acceleration clauses. So, vhb_s and HHI Investing... are correct in practice.

So, vhb_s, why did you leave out wraps and other forms of seller financing? :)

HHI Investing... I wish your list of tenant/buyers were in one of the markets in which I invest. :)

Herb... I could not agree with you more. I've been trying to assist people in selling their houses but have met a lot of resistance.

Anything that is perceived as "non-traditional" (ie...Traditional = throwing it on the MLS with a Realtor and praying a buyer comes along with 700+ credit and 20% downpayment) not only confuses people but scares them because they are not knowledgable enough to put it together correctly or they think it's a scam.

In my area, I have a list of tenant/buyers waiting for Lease-to-Own houses, but every time I try to contact someone that wants to sell their house to put a deal together with them, they tell me that they're going to just wait out the market or they are STILL way too unrealistic about what their house is worth. Either that, or their Realtor has a stranglehold on the property with a listing contract. It's all about motivation these days. If they are not motivated, I tell them thank you and have a good day.

Another reason is that many typical Realtors don't understand or want to bother with Lease-to-Own deals because it's not in THEIR best interest. They don't get paid until the property closes so why would they want to put that type of deal together. I've seen sooooo many Realtors put their own interests in front of the client's it's sad. Some I've dealt with, don't even bother presenting my interest in the property to their client even if the property is soon-to-be foreclosed upon.

I also agree to have a 3rd party (escrow company) handle all the payments to keep everyone honest and informed.

Kim, I are you really a Real Estate Pro? Your profile shows no affiliation to any Battle Creek Brokerage. I thought one would be proud to be with a RE offfice. I also checked the MI assoc. or Realtors and there is no you in Battle Creek. Maybe your are Mr. John T. Reed the gentlemans whose link you posted and are just trying to sell your own material? Mr. Bronchick (Attorney)who is mentioned on that link practices these techniques on Lease Options and Land Contracts as do many other Realtors. Although your reply was quite good I have to give you an opinion on Mr. Reed that is very common on many RE sites.
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I would not trust John Reed as far as I can throw him......which by the way, would most likely be at least a few feet. (I kid)

His Guru reviews, while accurate on perhaps a couple, and not on others, like any review service should be, is not really a review from an objective person.
The entire point behind the reviews he provides, as it seems, are to focus folks on his own materials for sale.

Now, sure, he may know a thing or two, have an Ivy education.........but, has he really been an active, extremely successful, high volume investor?
Because if that's what YOU want to be, perhaps following REED is not the best idea.

Heck, the guy still has positive reviews and recommends materials from a couple folks who have been charged criminally, AND one who actually lost his law license as a result of his RE activities.

So John Reed is not someone I would take serious about REI educational materials.
Name omitted.
Herb

I have noticed more and more Land Contract options are being offered due to credit limitations and low returns due to low interest rates. I have two listings right now available on Land Contract terms: 3203 Miller Rd Kalamazoo MI and 1022 Garden Kalamazoo MI. First National Bank will allow Land Contract terms on any of their bank owned inventory. You can find this list of homes on my website http://www.REOmamma.com under the First National Bank link on the homepage. They will consider anyone for land contract regardless of their credit as long as they have a down payment and a job/source of income.
Richard Stewart 269-345-7000
REO Specialists llc

The Due on Sale Clause (a.k.a. acceleration clause) is about "conveying interest" in the property, and a Land Contract or a lease with the option to purchase does convey an interest in the property, thus could trigger the due-on-sale clause.

Ed & Cindy: Actually a Lease with the Option to purchase also is a conveyance of interest in the property, thus could trigger the acceleration clause.

VHB_S: You said that a 'property tax increase is a poor example of going into foreclosure;' ... I beg to differ. In Michigan a non-homestead (non-owner occupied) property pays MUCH higher taxes than homestead (owner-occupied). And, when the property changes hands the taxes are "uncapped" giving the tax authorities the right to increase the Taxable Value, which also substantially increases the property taxes.
... ... Real Life Example: I bought a single-family home to rent to someone else. The following year, the annual taxes increased substantially from $1,483 per year to $4,330 (the Taxable Value "uncapped" and it has non-homestead tax status). I've never had one increase this much! This is an increase of about $237 a month, and the total monthly tax obligation is $360 -- ouch!! -- it is higher than my mortgage payment. I can't increase the rent by $237 a month to cover the additional property taxes. While I'm NOT facing foreclosure, you can probably see how someone else might be in this situation. It's not uncommon in Michigan.

I've got several investment properties and with almost every one of them, the taxes are higher than my monthly mortgage payment. I've seen this very situation force other investors into foreclosure because they could not rent the properties for enough money to cover their monthly payments, plus insurance, plus repairs, plus advertising costs, and all the other costs associated with being a landlord. Thus, it is not a poor example. I've since learned that when evaluating potential returns on an investment property, if it hasn't uncapped in 5+ years and is owner occupied status, I'll triple the current tax obligation and use that figure in my calculations so I don't get caught off guard again when the property taxes go sky high.

One way around the exorbitant property tax increase is to sell on Lease Option or Land Contract and file a Memorandum with the Register of Deeds giving the Buyers/Tenants homestead status (not transferring the deed), which subsequently lowers the tax burden to a more manageable amount. However, this is considered a "conveyance of interest" in the property and could trigger the Due-On-Sale clause. You're supposed to get written permission from the lender first, which is easier said than done. So, to answer your original question, this is one of the reasons why more sellers don't use a Lease Option or Land Contract to sell their homes.

I've included a link to valuable info about the Due On Sale, and what it mean to "convey interest" by not necessarily selling the property.

Hope this helps!

Ed n Cindy, While the DOSC is an issue you could always get permission from the lender, there are also ways to hide the transaction and just maybe the home is free and clear of a Mortgage. Don't get me wrong I'm not advocating any illegal methods.
As far as sellers going into foreclosure because of a property tax increase what a poor example. Its your job to not only make sure the buyer is financially stable but the seller too. There are ways to protect the buyer in these deals, The most common and easiest is the Memorandum of Option, second the Affidavit of Option and finally the Performance Mortgage. Its become way to often that I have seen buyers lose their home because the seller went into foreclosure, and some of the time its because they were not protected properly. This puts a very bad taste in their mouth and they will never buy this way again. I sincerely hope that none of these deals was because of you. Herb
PS a good bet when doing LO's and LC's would be to hire a 3rd party loan servicing company.

Some banks are offering their REO properties on land contract terms. Visit my website, http://www.REOmamma.com register for FREE list of Foreclosures and Land Contracts.

Herb almost all mortgages these days have a clause that states if you sell you must pay the bank in full. That would eliminate Land Contracts. It is called a Due on Sale Clause.

As for Lease Options once the owner rents the home the taxes got to non homestead, which will increase the owners payment. They would then need to find someone that can make their payment plus the additional amount in taxes. What we are seeing is many sellers that did this and are now foreclosing on the tenants because they can not afford the payment.