Due on Sale Clause

• If someone has financed a car, boat, recreational vehicle or even a piece of real estate, it is possible for you to "take over" the payments on the asset, as long as there is no "due on sale" or acceleration clause written in the contract. These clauses essentially prohibit the transfer of the loan to a third party. If you look at the fine print on a finance contract, you will often find a clause stating that the loan is terminated and payment is due in full "subject to" the sale of the property. This term is the basis for "subject to" loans. Although the practice of taking over payments is often advocated on "subject to" loans, the legality is in question and the risk to the seller can be great.
  
  

"Wrap Around" Loans

• Loans in which payments are assumed by another party are referred to as "wrap around" loans. VA and FHA and a handful of conventional loans are assumable, with new buyer qualification, and can be used to form a "wrap around" loan, which can be beneficial especially when the interest rate on the original loan is low. VA loans issued prior to March 1, 1988 and FHA loans issued between December 1, 1986 and December 15, 1989, in which the owner has lived in the home for at least 12 months, are assumable without qualification. If a VA loan is assumed, the person who originated the loan is not eligible for any further loans from the VA until the original loan is paid off.
  
  

Seller's Liability

• Should a seller negotiate a "wrap around" loan even though a "subject to" clause is in place, he remains liable for on-time payments and is subject to foreclosure if payments are not made or if the lender calls in the loan due to violation of the terms of the loan. Lenders are often made aware of the violation of the loan contract when the new buyer records a new deed.
  
  

Third-Party Take Over Payment Programs

• More and more, car, boat and RV dealers are helping people to unload their previously owned vehicles by facilitating a transfer of loans to new buyers. Websites have cropped up offering assistance in putting buyers and sellers together, likewise for real estate. Be cautious, however, when dealing with third-party programs. Check with an attorney regarding the language of any contract and its legality in your locale before signing on the dotted line.