Important Question...
If you purchase a property subject to an existing mortgage/note, can the note holder, at any time, come back to the purchaser/investor and sue them, trying to regain the home if they become disgruntled? Should I be worried when a note holder threatens to sue me b/c his note has not been paid off quick enough? :-?
If you're talking about a due on sale clause in a mortgage, The lender can, at their discretion decide to call the loan because of the title transfer. If you are talking about a seller carrying a second in your name that was part of your purchase agreement, and you are adhering to the terms of the financing, their threats don't have any substance that will hold up in court.
This could however be an opportunity to negotiate a discount. If they are threatening you, they may have an urgent need for some cash, and if this is the case, they might be willing to accept less than you owe as payment in full. If they make it worth your while, this could be a good reason to refi and pay them and the original loan off.
I apologize, let me clear that up. Can the seller sue me. His name is on the mortgage and he is complaining that the mortgage has not been paid off yet and because of that, he can not get another loan. When I took over the homeowners mortgage, we had no agreement of when the mortgage will be paid off. I have been making the monthly payments and the note is current. I just don't want to deal with a disgruntled person. Does he have a case, legally, against me to reclaim the home?
How long have you been paying it subto? I would look into refinancing and let him know you are working on it. I haven't done a subto yet but I would want to structure it so that I wasn't tying up their credit for an extended period of time...my thoughts were 18 mos max but I haven't done it yet so defer to those that have.
Did you infer that the loan would be paid off within a specific time frame? If so, the right thing to do would be to get a new loan on the property. If not, no, you are not "obligated" to do this. We try to get them taken care of within a couple of years, but that's the way we do it. Out of curiosity though, how long has it been since you acquired the property? Does your contract of sale indicate that you are responsible to make the payments?
They should be able to present the lender with the paperwork of the sale, and that should offset the debt to income ratio for the loan. If that is addressed, then if their credit is in line, there shouldn't be a problem with them buying a new home.
[ Edited by jeff12002 on Date 05/10/2004 ]
i agree with jeff, there is suficient proof in a 75% rule with lenders..showing the new sellers lender the transaction and that the note is being paid should hold some water if their credit is in fact in order--even subprime..
regards-pat
Is this a hypothetical question or an actual situation?
I have been paying the 'subto' mortgage for 6 months. I bought this home from another investor. I do not know how long he has been paying the mortgage or what his agreement was with the original seller. I am getting threatened with legal action and want to make sure that I am covered. I want to know if they have a case or not or if they are just bluffing??
Who's handling the payments, you or a Loan Servicing Company? An LSC would provide the seller with statements showing payments being made, which should actually be considered as 100% payment, not 75%, since it is a sale, not a rental.
If you are managing the payments, then you can put together a statement showing income/payments for the house. If it is in your name, the seller's new mortgage company may apply only 75%. With a sales contract and 6 months of payments, they should be able to qualify unless they have a ton of other debt that kills their Debt ratios.
In that case, you will have to refi them out, but you can always ask the seller to pay the closing costs since he is forcing the issue.
Good luck
Peter