What type of seller is likely to do a Subject To?

[rdavis]

I am a new member and have been reading extensively about buying property  "Subject To".    In this type of a transaction, why might the seller agree to doing a "Subject to" knowing that they are still ultimately going to be responsible for the loan because it is still in their name, but the property has now been recorded in your name and from a title point of view is now your property?

What is the benefit(s) to the seller to agree to this?  What type of seller would be open to this type of a transaction?

I have read a quite a few of the posts and haven't observed answers to these type of questions.   If I missed the answer in one of the post, please advise.

I am located in Southern California.  Would like to implement this, but need clarification on the above.

[Terry L. Simpson]

rdavis,
There are many reasons that a seller will do a sub2 deal. They could be divorce, paying for two houses at a time(double payments), tired of being a landlord are just a few. If you keep reading all the material you can, including this forum, you will see there are so many reasons. The benefits for the seller depends on why they are selling. I think the most important benefit to the seller is a fast close. The sooner you take over the payments the better for them. I also point out that if I have to get new financing the cost might keep me from buying their house. There are other reasons that depend on the seller's situation. I hope this helps a little and keep educating yourself. Good luck.

Terry

[cainvestor]

What are some best ways to look for sub2 sellers, newspaper ads?  I am So CA also.

Anyone in So CA done sub2, any tips and problems encountered in this market?

[IWINUWIN]

Sellers who are most willing to do this are in big financial trouble and have nothing to lose. You guarantee their loan payments and are morally, ethically, and contractually responsible to do just that. The benefits to the seller can be (credit repair - your paying his loan off), and the basic peace of mind that his "PAIN" (financial headache has been taken care of.

KEC

[IWINUWIN]

When I say nothing to lose I mean Little or no equity

KEC

[cainvestor]

In general I understand a house need to have some(more better) equity in order to be a viable SUB2 deal.  No equity might fit lease option better?  

[IWINUWIN]

A house that has equity is always better for sub to or Lease Options . In Sub to you will be paying pennies on the dollar for the equity. But what if you are in an area that is appreciating at 20% year after year? Tell ya what - I'd buy all the zero equity houses I could find sub to. Houses with alot of equity are good for  Lease Options because someone with good equity is not going to give you the deed in a sub to - why should they or why would they.

KEC

[Amanda-NY]

Hi Keven and everyone.

I am also learning about l/o and sub 2 and some questions.

So basically, what you are saying is the owners have some kind of financial trouble and what they want to do is get rid of their property.  However, since their house have no or little equity, realtors don't want to list the house.  Then, you offer l/o or sub 2.  Let's say, sub 2.  You will take over the payments, put some tenant/buyer and correct the rent which is little more than original mortgage payments.  Then, you make a mortgage payments. (whatever different is you motnhly cash flow).

So,
(1) payment book for the morrgage will be delivered to the house (original owner).  Is that mean, you will ask the tenant to mail it to you?

(2) why can I just buy the house?  If you are looking for monthly cash flow, just buy and rent is also option.

(3) let's say, I have payment book and start making a payments.  Now check is my name (either my name or LLC's name).  Does lender question me or seller why?

The last question is what is the major difference between l/o and sub 2?  

I am still learing....

Thank you

Amanda

[sarafina]

1. Usually you'd send information to the lender asking them to mail all the future payments/mortgage info to you.

2.Buying the house outright and renting/selling it involves higher costs than whats associated with sub to's or l/o. Remember the power of creative rei is to get in with as little as YOUR money as possible.

3.The infamous due-on-sale clause is a definite risk. The lender may call your loan due. Generally speaking the lender won't question payments going somewhere else if they are being paid on time.

Read the articles on this site about l/o and subject to. They provide alot of great information.

[Amanda-NY]

Hi sarafina

Thank you for your reply.  It was really helpful.

You mentioned that I'd send information to the lender asking them to mail all the future paymens info to me.
Or I may tell the lender that I am taking care of Mr. Owner's payment.  I understand lender usually doesn't care as long as monthly payments are made.  But don't they (lender) ask you why do they have to payment info to you. (I don't think that they just send the confidential info to stranger....)

3.The infamous due-on-sale clause is a definite risk. The lender may call your loan due. Generally speaking the lender won't question payments going somewhere else if they are being paid on time.

Who is making a payment?  Me (buyer and now owner the property)? or Original owner (seller and now only responsible for the loan)?  or Tenant/buyer (who is renting the house from me)? or simple open up an escrow account and make a payment from the account to the lender?

Maybe I am thinking lender's mind.....

Thank you
Amanda

[cainvestor]

Amanda,

From what I know, you will want to put the house in a Trust with you being  a trustee.  Then send the letter to the bank and have them forward necessary documents, payment book to the trust.   A good course in sub-2 will be very helpful.   There are more details and steps to this.




 

[IWINUWIN]

Amanda,

You DO NOT want to L/O from an owner in trouble - get the deed sub to!!!!!!!!

As Sarafina says, The Seller will contact the Mortgage company and/or give you authorization to service their account. Then all the Bank Loan info will be directed to you.

Under a sub to - You will be ethically, morally, and contractually responsible to make those sellers payments for his loan on time. You are responsible-not your buyer to make those payments. Those payments must be made whether or not your buyer pays you.

The buyer should pay you - you should pay the original seller's bank.

I understand Trusts can be used also, but seems from what I have read, they are more trouble than they are worth and also complicate things. Also I understand that North Carolina will not allow such a vehicle to be used in sub to's as they are a way to hide the fact that a transfer has occurred - in accordance with the Attorney General there. They were meant for estate purposes and our now also used to disguise the transfer of title in other states. Correct me if I misunderstood this concept as I have not worked with trusts.

Keep it Simple

KEC

[Amanda-NY]

Hi Kevin.

So what you say is that you will find the owners who is in trouble and get the deed from them.   You will explain that you will take over the payments but the neme of the payments will stay the ower's name.   You may tell them that you will start payment two or three month from today (or whatever the period) because you need time to find tenant/buyer of the property.  

Then you will find tenant and check them and have contract with the tenant.   If they want to rent/own you will have l/o contract with them.  Whatever the case, you will collect the payment, let's say mortgage payment is $1000 and you collect $1300.  The difference, $300, will be your monthly cash flow.

If seller is still worry about the monthly payment, I can offer to open escrow account.

(1)  Can I ask seller to refinance some point?  Since the mortgage payment is still seller's name, I can't do anything.  

(2) When seller ask to lender to send the payment book to me, can seller simply tell their lender to send it to me because I took over the payment?  I am still skeptical if lender just do it.   I understand that seller's interest is to get money on time wether or not it's from seller.  However, they may ask if I bought the house from the seller.  

Thank you
Amanda

[IWINUWIN]

So what you say is that you will find the owners who is in trouble and get the deed from them.

YES

You will explain that you will take over the payments but the neme of the payments will stay the ower's name.

YES THE LOAN STAYS IN THE SELLERS NAME YOU MAKE THE PAYMENTS

You may tell them that you will start payment two or three month from today (or whatever the period) because you need time to find tenant/buyer of the property.

IF YOU CAN GET AWAY WITH IT - BUT THEY ARE IN TROUBLE - CAN THEY MAKE THOSE PAYMENTS? or DON'T DO THE BUY UNTIL YOU FIND A TENANT BUYER.

Then you will find tenant and check them and have contract with the tenant.  If they want to rent/own you will have l/o contract with them.  Whatever the case, you will collect the payment, let's say mortgage payment is $1000 and you collect $1300.  The difference, $300, will be your monthly cash flow.

CLOSE ENOUGH

If seller is still worry about the monthly payment, I can offer to open escrow account.

YOU CAN OPEN A BANK ACCOUNT/ESCROW ACCOUNT, WHATEVER TO KEEP SOME CASH IN TO MAKE THE PAYMENT FOR WHEN YOUR T/B DOESN'T PAY OR IS LATE

(1)  Can I ask seller to refinance some point?  Since the mortgage payment is still seller's name, I can't do anything.  

THE SELLER DOES NOT OWN THE PROPERTY ANYMORE. IF HE'S GOING TO REFINANCE HE SHOULD DO IT BEFORE YOU GET THE DEED

(2) When seller ask to lender to send the payment book to me, can seller simply tell their lender to send it to me because I took over the payment?

WELL THATS PROBABLY THE RIGHT THING TO DO - BUT IT WILL CAUSE CONCERNS BY THE LENDER AND THEY MAY OPTION TO TAKE THE DUE ON SALE CLAUSE - YOU DON'T WANT TO HANDLE IT THIS WAY. THE SELLER SHOULD INFORM THE BANK THAT YOU ARE HANDLING THEIR ACCOUNT FOR THEM AND EVERYTHING SHOULD BE DIRECTED TO YOU OR SOMETHING SIMILAR.

KEC

[Amanda-NY]

Ok, I'm start getting it....

So sub2 case, the bast way is to have buyers list (well, it's may be good for all the cases) so that when I find a property, it may be easy to find tenant.  

WELL THATS PROBABLY THE RIGHT THING TO DO - BUT IT WILL CAUSE CONCERNS BY THE LENDER AND THEY MAY OPTION TO TAKE THE DUE ON SALE CLAUSE - YOU DON'T WANT TO HANDLE IT THIS WAY. THE SELLER SHOULD INFORM THE BANK THAT YOU ARE HANDLING THEIR ACCOUNT FOR THEM AND EVERYTHING SHOULD BE DIRECTED TO YOU OR SOMETHING SIMILAR.

I have talked three banks to ask about taking over the payments.  All of them said that I CAN'T just take over the paymets.  They said that seller has to pay off their mortgage (means that I have to get new mortgage to buy the property and when I bought the property, the seller can pay off his/her mortgage)  I am worried that let's say seller agreed sub2 and I bought a property from them.  However, the lender didn't allow to send the payment book anywhere but sellers address or attention to seller, what is my next move should be?

Lastly, when seller ask why I can't just buy their house, what is the best answer to them?

Kevin, thank you so much for your help

Amanda