Benefits To Keeping Seller's Name On Mtg
\In an earlier post, someone mentioned that they explain the benefits of the seller keeping their name on the mortgage during their presentation to the seller.
What are the benefits (to them, not the investor)?
1. They get to sell their house quickly to you, and that's the only way you will buy it.
2. ...any others?
Hopefully you will make the pmts on time so they will have a current mortgage pmt history. No more late pmts.
they can retain the write-offs
So the seller deeds the house to the investor. The investor makes payments to the seller who is now a mortgage holder? And the seller still makes his payments to the original mortgage holder? Or, is there no mortgage between the seller and the investor, just a deed?
Terry
Hi Terry,
Personally, I would make the payments directly to the lender, that way you'll know that the payments are being made.
No there is no mortgage between the seller and the buyer, you are using the seller's financing that is already current on the house.
I hope this helps, others will probably chip in and go into more detail.
I'm just learning too
Quinn
The primary advantage to the owner of record is DEBT RELIEF. He gets this monkey off his back now. Secondarily, there's a sale now and/or when ever he wants the sale to transpire. No waiting, no middlemen delays.
Two things you should strongly consider. You make the payments to the lender. Next, you made the payments, you take the tax deductions.
1. Cheap: you're not paying out fees to a mortgage broker. Most loans will have at least one point as well as an apparaisal, inspection, etc.
2. Time: Assuming the loan you can write up the paper work in 10 minutes, do the title work, and close the deal. Do you know of any banks that can get you money that fast??? Heck, most HML's take a week.
3. More Deals: Additionally, you can get the deal when a conventional buyer wouldn't be able to because you can move fast. They don't have to wait 90 days, only to find out that you didn't qualify for your loan. Some home owners have gone through 4 unsuccessful contracts.
4: Liability: You're not risking your own credit. Likewise if things go south, you don't have a foreclosure on your record, they do.
5: Leverage: many lenders will get nervous if they see that you have 40 home loans in your name, and won't want to lend to you. This way you're using other people's credit and so if you do have to use your own for a deal that comes along, you can.
6: Rate: You may assume a rate much better than what you could get on your own. Perhaps not right now, but in 2 or 3 years when home rates are at 9%, and you can buy homes sub. to their 5% loan.
7: Packing the loan: Similar to above, you can make a passive income by assuming a 5% note and selling it to someone with a wraparound at 10%. Easier than being a Landlord!
A huge benefit to the seller remaining on the loan is the fact that their credit report will start showing a strong payment history (I'm assuming we're talking about people who were facing foreclosure here). You've already stepped in and prevented foreclosure, but their credit is still in the dumps, albeit not nearly as bad as if the foreclosure had gone through. 12 months of good payment history is the magic number that future lenders would like to see, and that will go a long way toward overcoming the little "hiccup" they had right before you stepped in.
We agree with the items posted and would like to add that the seller in the "Subject To" situation can usually obtain top dollar for their home without realtor commissions. The seller has put in their pocket 5% of the purchase price.
Eric & Rosa
[addsig]
Hello everyone;
Can someone tell me what the advantages of a quit claim deed would be to a seller who is not in foreclosure, but is desperate to sell his home?
I'm a newbie as you can tell.
I have a contract on a very nice home that I am trying to flip. Owners are splitting up. Guy is moving to another country. Wife will stay here with kids. Home will probably appraise for $11,000 more than they owe.
is there any way to help them and make this work with a quit claim if I can't flip it? Thanks.
If you get the deed to a property, you get the tax benifit not the person on the loan. It's based on ownership.
eszqsc
Give me an email. I am just down the road from you. We might can work something out.
Sire
As an incentive you may want to offer them some kind of equity split. If they feel they have something coming it may make them a little more interested. You may not make what you wanted but you may just get the deal and make something. Have to be grateful of the blessings we get no matter no small.
Just my 2 cents
Benny
[addsig]
I thought that to take the tax deduction you had to own the home and have the debt. With a subject to, you own the home, but the old homeowner still has the debt which is why the 1098 comes in the name of the old homeowners. How does one get around this?
Thaks
Heya benny222,
The equity split idea is a good one ... getting the seller in the game a bit more might seal the deal. My question is that if you are selling on a CFD or LO where your largest profit center is likely to be a year or more away, will a seller go for that delayed payoff? I would feel less inclined to hand over the equity share to my seller out of the up front monies from my buyer.
Molotov
In my sub to deals as well as yours im sure that you have the deed, you have recorded the deed and the tax bill comes to you. YOU OWN THE HOME, they own the loan! You have every legal right to claim the home on your taxes. You just prorate it the first year with the person you got the home from.
I haven't checked this thread for a while now, but here is the list of benefits to the seller you came up with so far:
1. Quick Sale - The seller can get rid of their house today, instead of waiting months to sell.
2. Debt Relief - No more house payments to make on this property.
3. Improved Credit - Since the investor will be making the payments on time, the seller will build or rebuild an excellent payment history.
4. Less Expensive Closing - The sale will cost them less, because there are fewer, if any, closing costs...and no realtor commissions, transaction fees, etc.
5. Hassle Free Transaction - Since there are fewer middlemen, there is a better chance of closing with little outside interference.
6. Higher Price - The seller gets top dollar for their house.
7. Get Rid of Maintenance Headaches - The seller will no longer have to pay all the costs to maintain the property.
Did I miss anything?
Thanks for all the feedback!
Scott[ Edited by eissc on Date 12/06/2003 ]
The instructions for Schedule E provide for the case where you pay the interest but don't receive the 1098. See page E-4 of the instructions. There's a line on sched E for "Mortgage Interest paid to banks" and a line for "Other interest". THe instructions say that if you don't receive the 1098 then put the interest paid on the Other Interest line (line 13) and write "see attached" and you're supposed to attach a statement to your return showing the name and address of the person who did receive the 1098.
Does everyone do this as it sounds like the instructions are pretty clear cut on the subject.
That's how it works if you own the property yourself but how does everyone handle it if they own the property in an LLC and are filing a 1065? The form 8825 is the partnership version of the sched E but I can't remember seeing similar instructions for the 1065 or 8825.
bump for erick's question above.
studentisready (and Erick, if he's still listening):
, who will in turn send the payments on to the lender, and, if escrowed, the county tax collector and insurance company (and any extra "pack" will be paid to my account). At the end of the year, I can have the LSC make out a 1098 in my buyer's name that they can use to claim the interest and taxes they've been paying on that property. I've had the LSC make an address change to the lender so the LSC will be receiving the orig. seller's 1098 form, so it never goes back to the orig. seller.
To get a REAL answer to Erick's questions on the 1065 and other tax questions: see a professional CPA/accountant, etc. Trying to get this from a forum seems somewhat risky to me when dealing with the IRS.
That being said, there is another question here: if you take the house sub-to, do YOU want to write off the interest or do you want to pass that write-off to your BUYER? I'll be using this write-off issue as an added bonus to my contract for deed buyers to help sweeten any deal.
To do this, I'm having my buyer's payments made to an independent 3rd party loan servicing company (an "LSC"
Andy
Andy,
You are correct, it is a great incentive to your buyer if they get the mortgage deduction. Otherwise, they are just paying rent. As John Locke says, they get the 'pride of homeownership'. And, you do not have maintenance, as you would on a rental.
As for the LSC, that is the only way I'd do it. I do not want to handle the checks, tracking taxes, etc. Of course, someday I may own the LSC, but it will be a separate entity with an accountant managing it.
Peter
Andy,
You are correct, it is a great incentive to your buyer if they get the mortgage deduction. Otherwise, they are just paying rent. As John Locke says, they get the 'pride of homeownership'. And, you do not have maintenance, as you would on a rental.
As for the LSC, that is the only way I'd do it. I do not want to handle the checks, tracking taxes, etc. Of course, someday I may own the LSC, but it will be a separate entity with an accountant managing it.
Peter
Quote:
I thought that to take the tax deduction you had to own the home and have the debt. With a subject to, you own the home, but the old homeowner still has the debt which is why the 1098 comes in the name of the old homeowners. How does one get around this?
Thaks
If you use a loan servicing company they will send YOU a 1098 for the homeowner, and they will also send you a 1099 for the payments that YOUR buyer makes to you. Then it's just a matter of subtracting the 1099 from the 1098 to get how much you made that year.
In other words we get the write off, but (if you're smart) you get just as much (if not lots more) in interest income from your buyer.
You then just claim the interest paid to you by your buyer in the "interest earned" column of 1040... And claim the 1098 interest paid in your itemized deductions. That's all you need.
Best of luck
Sam
Hi All,
Getting back to the benefits of a short sale...From the seller's standpoint, what assurances will they get from the "investor" that the payments will be made on time besides just going by the investor's
words.
I ask this because one of the previous replies indicated that if the house were to "foreclose" then it doesn't ruin the "investor's" credit...
However, this will surely ruin the "seller's" credit. So, what is the benefit here to the seller?
Everything else about doing a short sale sounds great, but something is missing here.