Subject 2 and/or Lease Option Deals... Are they Illegal?

[idhomebuyer]

Hi,

     I received an email the other day that had a video from I think Lou Castillo and Josh. I couldn't find it, but they were saying Subject 2 deals are Illegal, that they bring out the "Due On Sale" clause, and everything else, and that you could get into trouble.

     How true is this, and is there a better way to work around this and to still get $5k per deal doing subject to the owners existing financing or I guess wholesaling pretty houses and still keep the owner happy?

     There was  a guy I know that was doing something like this about 5 years ago, but I couldn't figure out how they were doing it. Thank you and Merry Christmas. 

[javipa]

The due on sale clause is only important if 1) you have equity in the house, and 2) the bank rates are at least 4 points (approx) above what sellers (competition) are willing to charge in interest and 3) the loan defaults. 

This is the Trifecta of due on sale clause actions.  Meantime, I do "subject to" investing, flipping, and merchandising professionally and I've been doing it since 1990.  I've never had a bank call my loans.

Search this forum for my posts on the subject and you'll get a much better understanding ...or go to my blog and read about it.

Have fun!   

[David Alexander]

I've been doing for around 14 years..

Like the previous guy said..

The Due on Sale is not an issue..
The banks don't want the properties
they want the money...

I do something now I call sub3...

It removes more of the liability of a
sub2 deal..

I'm fixing to release some new video's
on exactly how to do what you are talking
about... Sub2 assignments...

Most of the guys out there are calling the mortgage
assignments which is a misnormer...

My mentors from way back when would have
laughed that they were trying to sell this simple
technique as a whole course....

It amazes me that the new breed of guru selling
info just dreams something up and says we can
sell that it sounds sexy...  when its very simple..

If they spent their time really training folks in the
real estate business.. then more people would be
successful...

Sub2 Assignments, Wholesaling, those aren't courses..
but, rather 15 minutes with someone smart... and a good
title company...

[javipa]

David,

How many "Subject  To" transactions have you completed?

Why should we use a "Cog" note?

Is foreclosure necessary on a Land Contract?

If you owner finance, what happens if your buyer stops paying you?

What do you do to avoid having to evict someone from your property?

How do you convince a seller that it's a good idea to hand their deed to you without formally assuming their loan?

Just asking.  You make it sound so easy.

By the way, how do you protect yourself from a lien, if you don't get title insurance?

And what do you tell the title company that you're doing, when they won't issue title insurance on a "subject to" deal?

It would be helpful to know these answers, because I can't seem to get them from either my title company, my attorney, or my real estate agent.

[Viking]

The Due on Sale clause is a HUGE issue.  Just because some one investor says (with no law experience) that it is legal does not make it so.  The new promotion of a Mortgage assignment product is just a new twist on an older concept which is still illegal.

These deals will come back to bite you !  Don't let anyone tell you there is no Due on Sale Jail..
Because you can go to prison for ....
Mail, Wire Fraud
Insurance Fraud - ( PMI)


Not to mention you have to abide by the SAFE Act, and various other state laws!  At this time in the economy with the current government.. I would suggest staying well clear of Sub 2.

Why not call up HUD, or a Mortgage Compliance officer and ask them....  Or better yet, why not call the bank, tell them what you did, and have them send you a confirmation letter that your new deal is okay with them..  They will not!  Therefore your entire real estate business is built on very shaky ground.

[AJ290]

Viking, is there any light or windows where you live?  Or is your world a constantly dark and dreary place?  Good lord!  What a downer you must be. 
The good news is others can go out and proceed to do their deals while the likes of you offer no competition.

[nsu1997]

Viking, is there any light or windows where you live?  Or is your world a constantly dark and dreary place?  Good lord!  What a downer you must be. 
The good news is others can go out and proceed to do their deals while the likes of you offer no competition.

I couldn't agree more. I won't subscribe to the theory that my closing attorney who's been in practice for over 30 years doing sub2 transactions would risk being disbarred or going to jail by effectively breaking the law over and over again.

[moellerryan]

Every state is different.  Find an expert in your state who does Subject 2 and Lease Options and learn from them.

[JLondon]

The Due on Sale clause is a HUGE issue.  Just because some one investor says (with no law experience) that it is legal does not make it so.  The new promotion of a Mortgage assignment product is just a new twist on an older concept which is still illegal.

These deals will come back to bite you !  Don't let anyone tell you there is no Due on Sale Jail..
Because you can go to prison for ....
Mail, Wire Fraud
Insurance Fraud - ( PMI)


Not to mention you have to abide by the SAFE Act, and various other state laws!  At this time in the economy with the current government.. I would suggest staying well clear of Sub 2.

Why not call up HUD, or a Mortgage Compliance officer and ask them....  Or better yet, why not call the bank, tell them what you did, and have them send you a confirmation letter that your new deal is okay with them..  They will not!  Therefore your entire real estate business is built on very shaky ground.

WOW!!!!!!!! What a negitive Nancy!   BAN him

[Kelly luvs Bandit Signs]

Hi,

The biggest thing that hangs up most “subject to” investors isn’t the
legality of the sub2, but the contracts they use when putting together deals.

There're several disclaimers that need to be in place to protect you from
having a seller come back and say you tricked them or something like that.
 
Just one of many is to have the seller….IN THEIR OWN HANDWRTING…write out
and sign that they completely understand that the house is being purchased
subject to the existing financing and that the lender  can call the loan due on
sale/transfer .

I use a several types of contracts, pro-buyer and pro-seller….some long form
and some short form depending on the situation.

Finally, closing through a title company or attorney that understands the
business offers an, “arm’s length plus six inches component.  A transaction
in which the buyers and sellers of a property act independently and have no
relationship to each other. The concept of an arm's length transaction is to
ensure that both parties in the deal are acting in their own self-interest and
are not subject to any pressure or duress from the other party.

The extra six inches is the paperwork with all the disclaimers.  The paperwork
is done to protect me and my interest, but when presented by an attorney,
ensures I am not influencing the deal in any way.
Hope this helps!!

[javipa]

Kelly, how many Sub2 deals have you closed with that approach?

I've been at this about 19 years, and I've never found it necessary to do all that you suggest.  I'll say that what you're describing is the best Sub2 deal-killer ever.

Sub2 deals require mutual trust, and if you've created so much distrust that you have to have sellers hand write affidavits attesting to 'understanding' what their doing...then I would say you've either screwed up the offer, or you're in front of the wrong seller.  Either way, not everyone qualifies for a Sub2 deal. 

Evidently your qualifying process leaves something to be desired. 

My clients are delighted that I'm saving their credit (or improving it), and that they are out from underneath a debt load.  They give me appliances, furniture and cars just to make sure I'll buy their houses.  They're not confused about giving up their deeds and handing over their loan payments, or what to expect from me later. 

I mean how complicated is that concept, really?  I spell it all out in my offer. 

If they are still confused, then signing an affidavit is beside the point.  If so, I've got to take into consideration that the seller is both a retard, and a risk, to do business with in the first place.  So, I never buy houses from retards.  I just get out of Dodge. 

That said, what you're offering is completely adversarial, if not unworkable in the real world of Sub2 negotiations.   Or, perhaps necessary for a different kind of transaction.  I don't know.

Maybe I'm missing something.

[cadw2005]

javipa,
What documents do you have your sellers sign? Did you have them drawn up by a lawyer or are they standard contracts?
Thanks

[javipa]

javipa,
What documents do you have your sellers sign? Did you have them drawn up by a lawyer or are they standard contracts?
Thanks

There's no need for an attorney.  I just have the seller write down that he understands that he is giving me the deed to his house and that I'm taking taking over his loan payments.  He also acknowledges that I will likely begin making his loan payments late every month and lower his credit rating by at least 200 points, and that he's "OK" with that.

Then I have the seller write his bank, informing them of an ownership change, so when they don't respond in a reasonable time, he knows the bank has given him "permission" to assign his loan to me without any further "problems." 

I call it the "KYBG" package.  Yes, it does stand for, "Kiss Your Butt Good Bye." 

I sell it for $997.   

[nsu1997]

^^^

[Real Estate Seller]

javipa I like reading your posting. A day without javipa is like a day without sunshine.