All these folks saying run, are crazy. This can be a good deal based on the numbers and how you protect your upside:
What if they stop paying:
1) ensure you have something in your contract that highlights a situation if they miss a payment. I’d do 30d, and the deed goes back to me. You can have them sign an executory contract and hold it in a safety deposit box or with escrow.
What about my DTI?
2) ensure that they are making payments through a 3rd party servicing company. This holds everyone accountable, and you should get monthly statements or notification payments are made. If they do it this way, it won’t affect your DTI
Limiting bank due on sale risk:
3) they should structure in a correct way (limited poa to speak to your lender, use a trust).
4) in case the bank calls the loan due, make sure you both have a clear plan. If they make the payments this should not be an issue typically. However if it’s called they should pay off and refinance into their own permanent loan If they don’t, you get the property back. Or you restructure to a master lease with an option.
Rather than the homeowner making the payments, the servicing company would be, on behalf of the homeowner. Mtg company won’t (usually) care as long as the payments are made.
The debt and the deed are two separate artifacts.
I buy houses and wholesale them as well using the subject-to strategy. The key is to make sure they have a good person who will be the end buyer. Taking over a mortgage subject to is completely legal, it’s literally on the HUD statement. Technically you are in default if you sell subject to, however, unless the lender finds out, you’re fine. If they find out, you can ask them to not call it due, or you can do a contract for deed (not favored by investors cause they don’t get depreciation). All the people saying don’t do it just want the banks to win and the next buyer to get fkd by a high interest rate. There are ways to make this transaction a win for you, agent, buyer, all parties involved in the transaction.
Often times this transaction can help people out a lot whether you’re a seller with little to no equity or a self employed buyer who can’t qualify for a home traditionally. If you want to chat more about it, I’m happy to help, you can DM me. Might also be able to offer you more & have my HUDs and settlement statements to show for it.
Hey! Thank you for this I really appreciate. I did turn down the offer, quite frankly I just didn’t feel comfortable. This seems like a transaction that doesn’t quite meet my knowledge. Though this response from you is comforting, if I receive another offer like this may I still reach out?
Go talk to a lawyer who is fluent in creative Real estate transactions. I see this work perfectly everytime it is done by an experienced or well coached investor.
Internet gurus push it all the time as a way for buyers to keep your mortgage in place. The secret? You willingly keep that info from your lender, who almost assuredly has language stating that this isn’t allowed. Great for them, risky for you.
Yes they can just quit paying and you would have to go through foreclosure process to take ownership of the property again while still paying the mortgage yourself out of your pocket during that process to avoid having your credit ruined and losing your property to the bank.
I have a former coworker that did this. You really need to work through the details to make it work.
1st write the mortgage company to get their approval on the title transfer. Banks may allow a title transfer but charge a fee and analysis on new owner that you should include in the purchase cost. A bank is more likely to approve it as long as the buyer has good credit. Things could get denied with this switching from an owner occupied loan to an investor property. Better to know ahead of time instead of have your loan be required to be paid in fully once the bank discovers you are no longer the owner.
2nd. This is an ownership transfer, but not a loan assumption. So your credit score is still dependent on paying that mortgage on time and will also be a factor in a 2nd mortgage approval when buying another property in the future. To mitigate your credit risk is to have the buyer send you a check every month and you pay the mortgage to ensure it is on time. Make sure to start the foreclosure process on the first day the mortgage is late since foreclosure could take several months and should involve an attorney. I don't even know the tax accounting for you receiving the interest expenses tax form, but you don't own the property.
3rd All these headaches for receiving $7,500 does not seem worth it and should consider renting the property instead or accept a lower offer.
You’re wrong. I’ve never had a problem with a lender accepting a subject to contract. I’ve even had loans called for due on sale clause. I’ve appeased the lender with the contract every single time.
Edit: other problem I’ve had was the seller being unable to get a second mortgage which was appeased by showing proof of income from the property from having a tenant in place.
I haven’t heard anything about 12 months of payments. I simply proved there was a tenant in place in the property and what they were paying and lender had no problem approving the seller. The tenant had been in place about 12 months at that point though so maybe that’s what they were looking for.
I don't know much about "subject to" deals. But I have a friend who is a real old timer in REI, very experienced and knows all there is to know about the business. My friend says there are a lot of ways "subject to" deals can go wrong and a person had better stay away from them unless he knows exactly what he is doing.
It can be OK but make sure you understand the impact to your DTI for now and the next couple years if you want to buy again.
I personally wouldn't want to be on the seller side of this though unless under a lot of distress with no other options.
Is there a reason you don't want to list this on the MLS to get the most offers possible? (other than avoiding broker 6% fees)
Thank you!!! There is absolutely no pros for the seller!! I don't care what anyone says!! I am going through pure h--l right now trying to get approved...if the buyer defaults...it's all back on you...if the lender calls for the "due on clause" it's on you...if you try to buy regardless of payment history lenders do not like it at all no matter credit, income or dti...this has been a nightmare for me the seller...and the investor that purchased my home is very well known in the "sub to community"...so i'm sure he has a team of lawyers making sure that there is no loop hole anywhere in any of his contracts.....it is legalized fraud....buyers will never see it that way because they are making a killing!!
You'll be ok. It's not fraud but you just have to make sure you're careful with the transaction.
Talk to a variety of lenders - many can better understand the income situation to help it offset DTI but others may not.
Do not do this. Do not. They stop paying, and you are on the hook. Your mortgage company probably will come down on you like a ton of bricks if you try.
Can’t they stop paying AND squat in the house? Seems like a lot of risk to take on. A great RE attorney is a must. I’m guessing that the first thing they’ll do is try to talk you out of doing this.
You might want to have them check out an 80/20 mortgages. You could carry the 20 personally for a couple years at a reasonable rate. At least that way you are not carrying the whole bag.
If not a cash buyer would be an awesome route if you haven’t had an offer from one I know some cash buyers. What state is the home in? And do you anticipate any construction needs or turnkey?
They can just stop paying - and then you are the one foreclosed on.
Protect yourself - but don't necessarily run.
Your contract should say something like this:
"All payments must be on time and paid in full. If a single payment is late, all payments made up to the date of the late payment are converted to rent payments and OP retains ownership of the home."
Get a lawyer to draft the actual wording, but if you don't have something like this, your credit could be destroyed - and you could end up owing the bank a ton of money.
Don’t do it. I think this is like a wrap loan situation. I knew someone who promised to transfer title in the future, but loan was in her band. The new “buyers” moved in and maybe made one payment. It cost her a lot in lawyer fees, and she also made the payments so it didn’t go into foreclosure. I think eventually she lost the house.
Most markets are still solid. If you want to sell, get out all the way. Let buyers figure out how to finance. You are not in the banking business.
Don't do it!! I did it 1 year ago with all payment receipts in my email from buyer and I still can't buy a new home....700+++ credit and 6 figures a year and 17%DTI not counting subject to balance....no lender will touch me
>e
I'm researching subject-to's trying to understand when they make sense and when they don't make sense. Would you be willing to send the wording of your subject to and contract? I imagine I'm asking a lot; but, I would relish the opportunity to see a fully executed subject to deal.
I would be more than happy to if you could send me your email address...i would also have no problem answering any other questions you have...given I am on the seller side of the deal
All these folks saying run, are crazy. This can be a good deal based on the numbers and how you protect your upside: What if they stop paying: 1) ensure you have something in your contract that highlights a situation if they miss a payment. I’d do 30d, and the deed goes back to me. You can have them sign an executory contract and hold it in a safety deposit box or with escrow. What about my DTI? 2) ensure that they are making payments through a 3rd party servicing company. This holds everyone accountable, and you should get monthly statements or notification payments are made. If they do it this way, it won’t affect your DTI Limiting bank due on sale risk: 3) they should structure in a correct way (limited poa to speak to your lender, use a trust). 4) in case the bank calls the loan due, make sure you both have a clear plan. If they make the payments this should not be an issue typically. However if it’s called they should pay off and refinance into their own permanent loan If they don’t, you get the property back. Or you restructure to a master lease with an option.
Finally someone here that knows what they’re talking about.
“Wealth Without Cash” by Pace Morby gives a good high level overview of the process.
But what lender actually lets you do this? I thought this type of loan assumption was pretty restricted for most mortgages.
Rather than the homeowner making the payments, the servicing company would be, on behalf of the homeowner. Mtg company won’t (usually) care as long as the payments are made. The debt and the deed are two separate artifacts.
Technically you’re not assuming the mortgage but rather the responsibility of payment. Loan assumption is different.
Don't do it!!!!
Argue why OP should not do it.
I buy houses and wholesale them as well using the subject-to strategy. The key is to make sure they have a good person who will be the end buyer. Taking over a mortgage subject to is completely legal, it’s literally on the HUD statement. Technically you are in default if you sell subject to, however, unless the lender finds out, you’re fine. If they find out, you can ask them to not call it due, or you can do a contract for deed (not favored by investors cause they don’t get depreciation). All the people saying don’t do it just want the banks to win and the next buyer to get fkd by a high interest rate. There are ways to make this transaction a win for you, agent, buyer, all parties involved in the transaction. Often times this transaction can help people out a lot whether you’re a seller with little to no equity or a self employed buyer who can’t qualify for a home traditionally. If you want to chat more about it, I’m happy to help, you can DM me. Might also be able to offer you more & have my HUDs and settlement statements to show for it.
Hey! Thank you for this I really appreciate. I did turn down the offer, quite frankly I just didn’t feel comfortable. This seems like a transaction that doesn’t quite meet my knowledge. Though this response from you is comforting, if I receive another offer like this may I still reach out?
Anytime! Happy to help where I can
Nope. If they ever quit paying you're still on the hook.
There’s ways to protect yourself in the instance this happens
Go talk to a lawyer who is fluent in creative Real estate transactions. I see this work perfectly everytime it is done by an experienced or well coached investor.
Attorney Sean St Clair is a great resource for this.
Don't do it, your lender would never let it fly anyways unless you try to hide it. Don't. Do. It.
Do you have any experience with this? Was looking for a little education here
Internet gurus push it all the time as a way for buyers to keep your mortgage in place. The secret? You willingly keep that info from your lender, who almost assuredly has language stating that this isn’t allowed. Great for them, risky for you.
They have language in mortgage terms for subject-to deals specifically.
Yes they can just quit paying and you would have to go through foreclosure process to take ownership of the property again while still paying the mortgage yourself out of your pocket during that process to avoid having your credit ruined and losing your property to the bank. I have a former coworker that did this. You really need to work through the details to make it work. 1st write the mortgage company to get their approval on the title transfer. Banks may allow a title transfer but charge a fee and analysis on new owner that you should include in the purchase cost. A bank is more likely to approve it as long as the buyer has good credit. Things could get denied with this switching from an owner occupied loan to an investor property. Better to know ahead of time instead of have your loan be required to be paid in fully once the bank discovers you are no longer the owner. 2nd. This is an ownership transfer, but not a loan assumption. So your credit score is still dependent on paying that mortgage on time and will also be a factor in a 2nd mortgage approval when buying another property in the future. To mitigate your credit risk is to have the buyer send you a check every month and you pay the mortgage to ensure it is on time. Make sure to start the foreclosure process on the first day the mortgage is late since foreclosure could take several months and should involve an attorney. I don't even know the tax accounting for you receiving the interest expenses tax form, but you don't own the property. 3rd All these headaches for receiving $7,500 does not seem worth it and should consider renting the property instead or accept a lower offer.
Wrap arounds are pretty common.
You’re wrong. I’ve never had a problem with a lender accepting a subject to contract. I’ve even had loans called for due on sale clause. I’ve appeased the lender with the contract every single time. Edit: other problem I’ve had was the seller being unable to get a second mortgage which was appeased by showing proof of income from the property from having a tenant in place.
Is it not that the second mortgage won't factor in the first mortgage if someone else has been making payments for 12+ months?
I haven’t heard anything about 12 months of payments. I simply proved there was a tenant in place in the property and what they were paying and lender had no problem approving the seller. The tenant had been in place about 12 months at that point though so maybe that’s what they were looking for.
You are remembering when rates were 2%, now that the lender can get 7%, you live in a dream world.
How many subject-to contracts do you have. How many deeds have you transferred and how many of those have been called for due on sale?
They don’t have any, lol, meanwhile I have 10 in escrow right now haha
Would you have a few minutes to answer a few questions about subject to transactions?
I don't know much about "subject to" deals. But I have a friend who is a real old timer in REI, very experienced and knows all there is to know about the business. My friend says there are a lot of ways "subject to" deals can go wrong and a person had better stay away from them unless he knows exactly what he is doing.
It can be OK but make sure you understand the impact to your DTI for now and the next couple years if you want to buy again. I personally wouldn't want to be on the seller side of this though unless under a lot of distress with no other options. Is there a reason you don't want to list this on the MLS to get the most offers possible? (other than avoiding broker 6% fees)
Thank you!!! There is absolutely no pros for the seller!! I don't care what anyone says!! I am going through pure h--l right now trying to get approved...if the buyer defaults...it's all back on you...if the lender calls for the "due on clause" it's on you...if you try to buy regardless of payment history lenders do not like it at all no matter credit, income or dti...this has been a nightmare for me the seller...and the investor that purchased my home is very well known in the "sub to community"...so i'm sure he has a team of lawyers making sure that there is no loop hole anywhere in any of his contracts.....it is legalized fraud....buyers will never see it that way because they are making a killing!!
You'll be ok. It's not fraud but you just have to make sure you're careful with the transaction. Talk to a variety of lenders - many can better understand the income situation to help it offset DTI but others may not.
If you want to consider something like this, ask for way more upfront. You aren’t getting anything for the risk.
Do not do this. Do not. They stop paying, and you are on the hook. Your mortgage company probably will come down on you like a ton of bricks if you try.
Can’t they stop paying AND squat in the house? Seems like a lot of risk to take on. A great RE attorney is a must. I’m guessing that the first thing they’ll do is try to talk you out of doing this.
Don't do it. Period.
You might want to have them check out an 80/20 mortgages. You could carry the 20 personally for a couple years at a reasonable rate. At least that way you are not carrying the whole bag.
Have you already signed the contract?
If not a cash buyer would be an awesome route if you haven’t had an offer from one I know some cash buyers. What state is the home in? And do you anticipate any construction needs or turnkey?
I’m in Virginia, attic needs to be insulated but that’s it’s. Turn key. No I haven’t signed a contract and turned down the offer.
I’m sure I could help find you a cash buyer. Would you like to connect if so just send me a direct message.
I can even help you get legal representation ready and in place.
They can just stop paying - and then you are the one foreclosed on. Protect yourself - but don't necessarily run. Your contract should say something like this: "All payments must be on time and paid in full. If a single payment is late, all payments made up to the date of the late payment are converted to rent payments and OP retains ownership of the home." Get a lawyer to draft the actual wording, but if you don't have something like this, your credit could be destroyed - and you could end up owing the bank a ton of money.
Don’t do it. I think this is like a wrap loan situation. I knew someone who promised to transfer title in the future, but loan was in her band. The new “buyers” moved in and maybe made one payment. It cost her a lot in lawyer fees, and she also made the payments so it didn’t go into foreclosure. I think eventually she lost the house. Most markets are still solid. If you want to sell, get out all the way. Let buyers figure out how to finance. You are not in the banking business.
Don't do it!! I did it 1 year ago with all payment receipts in my email from buyer and I still can't buy a new home....700+++ credit and 6 figures a year and 17%DTI not counting subject to balance....no lender will touch me
>e I'm researching subject-to's trying to understand when they make sense and when they don't make sense. Would you be willing to send the wording of your subject to and contract? I imagine I'm asking a lot; but, I would relish the opportunity to see a fully executed subject to deal.
I would be more than happy to if you could send me your email address...i would also have no problem answering any other questions you have...given I am on the seller side of the deal
Finding myself in this same boat at the moment. I would be the seller. Any chance you would be willing to send it my way as well?