Understanding the Dynamics of Subject to the Existing Loan

[Wealthinvestigator]

Hello to everyone pursuing wealth, I have a inquiry in regards to the dynamics of subject to the Existing Loan transactions. I think I have slightly grasped the dynamics involved in this process:

1) Obtain deed from seller
2) Obtain payment booklet from seller and obtain a change of address form
3) Obtain power of attorney
4) Notify the lender that you are making payments on behalf of seller

My questions are: If title is in your name or corporate entity due to receiving a deed from the seller, but mortgage remains in the seller name,
a) when loan is paid off, how are you entitled to profits if mortgage remains in seller's name or
b) do you create some legal wording in your contract specifying that seller does not receive the profits upon sale on his home via the satisfaction of the mortgage? or
c) Does obtaining title from seller automatically entitles you from a legal standpoint to reap profits upon satisfaction of the loan and sale of the property?
d) Is item number 4 required?

Many thanks for responses provided to this post.

[TonyDiCorpo]

after all the leins are paid the name on the deed is the next to get what's left.  leins are 1, 2, 3 and so on in position

[Wealthinvestigator]

Thanks for the response TonyDicorpo, I appreciate your prompt response. May all your investments be lucrative. Thanks.

[Arwen]

Hello to everyone pursuing wealth, I have a inquiry in regards to the dynamics of subject to the Existing Loan transactions. I think I have slightly grasped the dynamics involved in this process:

1) Obtain deed from seller
2) Obtain payment booklet from seller and obtain a change of address form
3) Obtain power of attorney
4) Notify the lender that you are making payments on behalf of seller

My questions are: If title is in your name or corporate entity due to receiving a deed from the seller, but mortgage remains in the seller name,
a) when loan is paid off, how are you entitled to profits if mortgage remains in seller's name or
b) do you create some legal wording in your contract specifying that seller does not receive the profits upon sale on his home via the satisfaction of the mortgage? or
c) Does obtaining title from seller automatically entitles you from a legal standpoint to reap profits upon satisfaction of the loan and sale of the property?
d) Is item number 4 required?

I am not a Sub2 expert, but this is my understanding:

a- when you have the deed, you own the house. When the loan is paid off, the mortgage goes away. In a Sub2 transaction, you own the house, but the seller "owns" the mortgage. They are two separate things.

b- when you have the deed, you own the house. You don't need any wording that states the seller is not entitled to profits from the sale of the house when the loan is paid. The house is no longer his!

c- when you have the deed, you own the house. See item "b".

d- no. Just send the payments, and the lender will cash the checks. You have no obligation to tell the lender that you are making the payments.

HTH.

[IndyBruce]

Taking it Sub/2

You put the property in the Mr. & Mrs. Seller Family Trust.
You make the Trustee someone YOU trust. This paperwork gets recorded.  
You then have Mr. & Mrs. Seller sign the beneficial rights of the trust over to your LLC. This is not recorded.
Have the sellers sigh over to you limited power of attorney and the other release forms. This is not recorded.

[marcus335]

I have a question about sub2.  Since the seller still owns the mortgage, will this show up as a liability on their credit report?  Just wondering because that seems like it'd make it very hard for them to get financing for anything with a big mortgage on their report.  

[David A. Hurlbrink]

In almost all cases, that's correct, Marcus335. Lenders will only allow a 75% credit for rental income to allow for maintenance, vacancies and all the other costs typically associated with landlording. I use a long term triple net lease that mitigates these factors for the seller/grantor, and he suffers no hickey on his debt to income ratio.
regards,
Dave

[marcus335]

Thanks for the fast response Dave.  I'm obviously new to this and trying to anticipate things sellers would ask.  I don't want to have to say a lot of "I don't know's" and appear like a complete idiot.  To me, a large part of earning their trust is being able to answer their questions and remove an objections they have.  I want to take away their reasons to say no.  

I have read about triple net leases and they make sense.

[TonyDiCorpo]

u must answer any questions b4 they ever have a chance to become objections

[Wealthinvestigator]

Thanks for the additional feedback Arwen and IndyBruce.  
Arwen, I understand now that it is not necessary to inform the lender that your LLC will be making payments on the seller's behalf. Thanks for clarifying the deed process and the person(s) that are entitled to profits. IndyBruce, I sincerely appreciate that you provided the trust information as it relates to the LLC.

I hope both of you continued success in your investments for the new year and many years to come.

[GC Star Properties]

I am not a Sub2 expert, but this is my understanding:

a- when you have the deed, you own the house. When the loan is paid off, the mortgage goes away. In a Sub2 transaction, you own the house, but the seller "owns" the mortgage. They are two separate things.

b- when you have the deed, you own the house. You don't need any wording that states the seller is not entitled to profits from the sale of the house when the loan is paid. The house is no longer his!

c- when you have the deed, you own the house. See item "b".

d- no. Just send the payments, and the lender will cash the checks. You have no obligation to tell the lender that you are making the payments.


Won't the lender know you are making the payments when the proof of insurance comes from someone other than the original mortgage holder?

Thanks,
Greg

HTH.

[phucloctho]

I'm also a newbie to real estate investing. Could someone please tell me that once the owner sign over the deed (warranty deed or a quick claim deed), does that make you the owner of the house? Without contacting the lender, When you start to make the payment to the lender, won't they know that the house has a change of ownerbecause the insurance would be in different name? Would that make the lender call the due on sale clause, and the lender will call the loan to be paid in full in 30 days.
Is there a way to do this without having the lender to call the loan? PLease let me know if there is a way to do this?
Thanks,

John

[mtnwizard]

You get the owner to agree to remain on the loan.  I tell them that if they will remain on the loan, I will take complete responsiblity for payments, property taxes and maintenance and repairs.

You have him open a land trust in his own name and name a Trustee (hopefully a non-profit corporation).  The Trustee takes equitable and legal title to the property and it is deeded to him by the owner/seller.  This is legal under Federal law and does not affect the DOSC.

He then retains a 10% beneficiary interest and assigns you 90%.  You are now also an owner of the trust.  You can take title either as an individual, or for maximum protection, as an LLC.  Triple net lease the property from him and the IRS entitles you to writeoff the taxes and interest.

You make the payments and the lender is prohibited from doing anything.  

[TonyDiCorpo]

oh boy here we go again  :

[BooBoo]

Gary,

I understand you can put your property into a trust anywhere…no problem with that but  
the part that I don’t understand about this trust being legal under federal law is this assignment of the seller’s beneficial interest. How can the seller assign any or all of his interest in the property without it being a transfer?

My next problem with this trust is if it is only being set up for asset protection/amenity and not an attempt to hide the transfer from a lender, which might be construed as lender fraud, then why does it have to be set up before the sale and not after???

Please help with my confusion