should I disclose to buyer that deal is subject to?
I have often wondered what is the most tactful way to disclose to the buyer that the deal is subject to. I am worried about the liability that may come with not disclosing this fact to the buyer. I am curious how a seasoned investor would bring this up in the conversation without coming off as intimidating or confusing. 
travisluedke,
Thank goodness an easy one.
You are selling the property using Contract for Deed, or other State Specific device. When he meets the requirements of your agreement he gets the deed.
You bought the property Subject To, so your buyer only knows how he is purchasing the property not how you bought the property. Nothing to disclose here.
Was this to easy?
John $Cash$ Locke
Do you mean to say that when the buyer has cashed out the equity difference between the loan balance and your sales price that the buyer takes deed subject to?
Or do you mean to have the buyer pay out the entire sales price before deed is transferred?
If you are suggesting the latter, would you not have some extremely unhappy sellers whom have had a loan in their name for years on end while your buyer is paying the contract down to its finish?
[ Edited by travisluedke on Date 11/22/2002 ][ Edited by travisluedke on Date 11/22/2002 ]
travisluedke,
I knew it was to easy.
I never promise a seller when the loan will come out of his name.
When I sell under Contract for Deed I have as part of the agreement the buyer must refinance in two years. Sometimes I give them a one years extension for a monetary amount that I put in my pocket a little extra for my understanding. I have my team set up that when this time comes all my ducks are in a row to see my buyer can refinance.
John $Cash$ Locke
JohnLocke,
How do you "line up all your ducks in a row" so that the buyer will be able to refinance?
and while you are at it ,, What are some very tactful ways of buying subject 2 ? What do you say to a potential seller to get him interested in selling to you sub.2... How do you play the dice ...? I know you try to attract very motivated seller in the first place and you can tell them ....look i can save you money ..for example you will pay 5 or 6 % to a agent but this way you pay nothing . What are some other good lines to really put to ease the mind of the seller that you, the sub 2 buyer ,are acting in their best interest ...
travisluedke,
Based on your questions, I am not sure if you are asking about
1. Selling Subject To, where you have the underlying mortgage in your name, or,
2. Selling a property using a Subject To technique when you acquired the same property from a seller using a Subject To technique (a sandwich Subject To, if you will).
My answer to both questions is easy, and perhaps John Locke will jump in here too -- never be a seller in a Subject To deal. Remember that in a Subject To deal, the seller deeds the property to the buyer while retaining liability for the mortgage. The seller has given up ownership of the asset securing the loan for which he retains liability.
Selling on a Contract For Deed, you keep the title in your name until your buyer has paid off his loan with you. Compare this to the way car titles are handled in many areas. The lender holds onto the title until your car loan is paid in full. After that, you get to hold onto the title.
ive read john s book 3 times now and started reading it again this morning ... its all spelled out perfectly as far as sub 2 is concerned .. im just farming for extra replies ... jerr
Travis,
I'll jump in here as well. I tell all my TBers and/or tenants who are signing up for a home I took Sub2 that the underlying financing is not in my name, but that I am responsible for the payments. It's never been a big deal. They sign off on a disclosure that they are aware of this fact and the possible repercussions.
I don't know if anyone has a similar doc in their courses, but I haven't seen it before. I do my best to lay everything on the table when dealing with any party in the transaction. Perhaps it's overkill, but it will be difficult for the buyer to claim they didn't know.
Jerr,
I don't entice a seller and I don't act like I'm saving them money. I'm not doing them a favor, either. They have a problem and I have a solution. The technique becomes mostly irrelevant at that point.
It merely becomes an explanation of how the process works and the benefits to the seller for their agreement. Of course, I also lay out the pros and cons in greater detail than I'm alluding to here, but there's no subterfuge or manipulation involved. Yes, there is definite salesmanship, but this can be done honestly and with integrity.
There's really not any "tricks" to it. For me it was a matter of practice and trial and error as to how to present the "program", but I also don't present Sub2 as the solution if it's not a good fit.
Hope that helps...
TRandle,
As always excellent advice for the new person.
What I have learned from reading many posts from a new persons perspective is that you must post your answers from what they can visulize. We as seasoned investors found our knowledge from being out in the trenches.
My Contract for Sale in 'big bold' print talks about the Deed of Trust (the sellers note) and the DOS clause should the lender acclerate the note. My buyer is made fully aware of what this means, this has never been a problem for me either.
The new person needs a place to start, what I do is show them that direction. I do not buy every house I look at, everyone must understand the pro's and con's if everyone is not in total agreement them I bid the seller 'Good Day' and go on to the next deal. Should the new person have other methods fof buying only if they fully understand all the aspects of these methods.
We can speak from being in the field or out among them, I stress honesty in my program, as the new person learns they will learn how to field any questions that arise as we did.
In the beginning I can see where it can be overwhelming for the new person, it is investors like ourselves that share and guide them in the right direction.
Thanks for being here at TCI.
John $Cash$ Locke
John,
What are some reasons the lender would accelerate the loan?
Beacon,
The major reason would be the payments are not made on time, this is what I call the 'flagg' in the lenders mind. Never fall behind on payments after you become involved in the deal.
It cost many thousands of dollars for a lender to call a loan, it is not something they are willing to do if the loan is in good standing.
The lender has investors to answer to, an investor would question a lender as to why they called a loan in good standing and it cost the investor his money. The major reason lender's are in business is because they can show their investor's a rate of return on their investment.
Bottom line keep your payments current on the property.
John $Cash$ Locke
Beacon,
Another primary reason is the seller blows the whistle. Besides the missed payments scenario as JL mentioned, the only other times I've heard of the DOS being an issue is when the seller or seller's ex-spouse called the lender and spilled the beans.
Of course, it's all hearsay so I don't know, but I "seen" explanations from the investor didn't do a good job explaining DOS to the seller to the seller wanted to force the investor's hand.
I think it's important to add a clause into the standardized DOS Disclosure CYA that removes any and all obligations if the DOS is triggered due to direct actions from the seller.
So, make the payments on time and cover your hiney...
When acquiring a property from a homeowner in a sub2 deal, you sign a contract that you are taking over the payments, but you never actually have the deed transfer in your name??
Then, when the buyer refinances the property after 2 years, then how will you transfer the deed over to them?
seekingwriter,
You don't have it clear yet, When you purchase sub2, you get the deed. The seller executes a warranty deed to you, and you start making the payments on the loan that is in their name.
You do not sign a contract taking responsibility for the payments. That would be an assumption, and the lender would require you to qualify before they would allow you to assume the loan. Assumption makes you financially responsible for the loan.
Since you have the title, you sell on a contract for deed. When they meet their financial obligations to you and have new financing in place, then they get the deed/title.