Sub-2/Short Sale Mix.
Do many of you do this?
I see many deals where this would be an easy and quick way to take control of a property at a good price with minimal money. All day I see properties going into foreclosure with 80/20 loans or something similar. The 20% is willing to release the loan for $1k as long as the borrower signs a note for some of the balance. If you have a borrower that is filing bankruptcy, or hungry for money, couldnt you do this?:
Home purchased 2 years ago for $100k with
1st: $80k
2nd: $20k
Balances now:
1st: $85k
2nd: $22k
FMV is now $110k or so. Could you negotiate the 2nd into taking $1k to release the lien, and then give the borrowers $1k to sign a note for $10k or whatever the 2nd requires. You then sub-2 the property and bring the 1st current. You then have purchased the property at essentially a $20k discount, with $7k invested. At this point you could sell, fix up/sell, rent, etc.
Any ideas?
I have the follow in all of my contracts
SUBJECT TO/DUE-ON-SALE-ACKNOWLEDGEMENT: IF CHECKED „: YOUR COMPANY. as Buyer have entered in to a certain purchase and sales agreement date herewith, the parties fully understand, acknowledge and agree as follows:
1. Both Seller and Buyer are fully aware that the mortgage(s)/deeds of trust securing the property Described in Section I contain(s) provisions prohibiting the transfer of any interest in the property without satisfying the principal balance remaining on the underlying loans and/or obtaining the lender’s prior written consent (i.e., a “due-on-sale” clause), and that this transaction may violate said mortgage.
a. Seller specifically understands that this loan will be paid on a monthly basis by buyer, but will not be assumed or paid off completely at this time, and that this loan will remain in Seller’s name and may continue to appear on Seller’s credit report.
2. Seller and Buyer execute this disclosure form after having had the opportunity to seek legal counsel as to the legal and financial implications of the due-on-sale clause. The parties agree and understand that if said due on sale clause is enforced by the holders of said mortgages, the entire balance due under said mortgages/deeds of trust will have to be paid off. In this event, Seller and Purchaser agree to take all reasonable steps to satisfy said lender, including both parties taking steps to obtain financing and/or Purchaser submitting an application to formally assume liability for said obligations. Buyer understands that in the event that the underlying debt is not paid off, the lender holding the deeds of trust may foreclose the property, which will extinguish Buyer’s interest in the property.
3. Seller and Purchaser hereby agreed to defend, indemnify and hold all parties involved in this transaction harmless from liability in the event that the holders of the mortgages and/or deeds of trust on the aforementioned property are called due and payable.
4. The seller agrees and understands that the buyer is purchasing their property with the buyer taking seller’s existing loan “subject to” with the current loan balance and prepayment penalty to be deducted from sale proceeds.
5. Seller’s Current Lender Will refund seller’s Current Impound Funds directly To Seller when The Existing Loan Is Paid In Full. There will not be a Credit or Debit To Either Buyer or Seller For impound accounts on This Transaction.
Good Luck
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Hey thanks...but the key for me is what to do when I talk to them next...they need to be sold before I get to the paperwork...although you have given me more clauses to put in.
I am not sure what your point 5 means...impounds??
5. Seller’s Current Lender Will refund seller’s Current Impound Funds directly To Seller when The Existing Loan Is Paid In Full. There will not be a Credit or Debit To Either Buyer or Seller For impound accounts on This Transaction.
JOhn
John...
John Locke gave you some outstanding advise....
Remember that you cant loose what you dont own... And walking away from a deal as painful as it seems is sometimes that best.
And number 5 deals with the impound balance and who will be paid those monies... Since the lender will pay that money to the seller when I pay the mortgage off I dont give the seller a credit for the funds at purchase...
Good Luck
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John...thanks for the thoughts...
It must be true they weren’t sold…but I am really wondering if the conservative nature of New Englanders is a bit harder to overcome…I gave them all the key info about the DOS and taking over payments. I really tried to go for a close but they wanted to run it by a lawyer. I even tried “if you are happy with the deal (which they were) they could sign the P&S and make it contingent on legal approval”. No go…I know my technique will improve in closing but maybe they aren’t really motivated BUT they look soooo prime…already in their new house, other house hasn’t sold for 8 months and they have a new baby plus the market is softening. How many more factors could be in my favour?
I may try the “let’s get the lawyers together” gambit but I may also just say
1) I don’t offer indemnities as part of my process…but I am curious as to what are they going to do if I don’t buy?
2) The remedy if the loan is called (as per Michel Quarles post) “that seller and buyer will take all reasonable steps to satisfy lender, including both parties taking steps to obtain financing and/or purchaser submitting an application to formally assume liability for said obligations”.
Perhaps its more likely to be a case of “And the next contestant please!”
Will the change in insurance trigger a call about their ownership status?? What would you tell them to say if they were called?
JK
Bottom line these sellers were not sold on what you where telling them, your job in the house is to get the Buy Offer and Acceptance Agreement signed, the real paperwork comes later when you are ready to close the deal and at that time you present the paperwork without interference from folks who do not understand how Subject To deals are structured..
John $Cash$ Locke
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Hey thanks..yes I think John was pretty much spot on!
Walking away may well be what happens but it doesnt hurt to give it one more roll of the die though does it?
Still confused by what "impound" means...are you talking about tax and insurance escrow amounts?
John
Quote:
On 2006-01-07 17:03, IBuyHousesInc wrote:
John...
John Locke gave you some outstanding advise....
Remember that you cant loose what you dont own... And walking away from a deal as painful as it seems is sometimes that best.
And number 5 deals with the impound balance and who will be paid those monies... Since the lender will pay that money to the seller when I pay the mortgage off I dont give the seller a credit for the funds at purchase...
Good Luck
Impound account is where a portion of the payment goes in escrow for taxes and insurance.
Thanks for all your posts!
As a newbie...boy do I feel the need to make it happen. Forgive me but I have little confidence that there is another deal right behind this one. I spent 18 months to scared to do anything before deciding it was now or never...
At the same time I dont want my need to push me into a bad deal.
BUT
I havent stretched to make the deal yet...
Profit potential on this is approx $35k...pretty decent.
I may try the 3 month escrow with their lawyer...c. $5k yes I know its not text book Sub 2 but to make it happen, get the experience..and boost my confidence...maybe its worth it.
I am have been told many times that as investors we should stick by our word ie we will pay on the underlying loans even if we have no tenant buyer /buyer...if that is the case, isnt an indemnity just a written statement of that commitment? What do you care ...you arent going to default so the indemnity is moot??? What is the downside??
I can hear people screaming at me already ...
Of course if I can acquire the key attitude...or belief... that deals are like busses..one along every minute...I can forget this altogether!
Again I really appreciate all your help and support!
John
Indemnity is a legal term, most often used in an insurance context.
If you agree to indemnify the seller in the event you default on the underlying loan, then you are agreeing to pay his legal costs and any judgements against him that may arise from a foreclosure on the property.
Indemnity is not a guarantee that you will pay the mortgage and prevent a foreclosure, instead, you guarantee that you will protect the seller from incurring any costs that may arise when your failure to pay his mortgage loan results in a foreclosure.
Ok thank you …good to know...so now I def dont want to do it!
JK
Quote:
On 2006-01-09 18:12, NewKidInTown3 wrote:
Indemnity is a legal term, most often used in an insurance context.
If you agree to indemnify the seller in the event you default on the underlying loan, then you are agreeing to pay his legal costs and any judgements against him that may arise from a foreclosure on the property.
Indemnity is not a guarantee that you will pay the mortgage and prevent a foreclosure, instead, you guarantee that you will protect the seller from incurring any costs that may arise when your failure to pay his mortgage loan results in a foreclosure.
I definitely do not intend to default....
So what kind of assurance can I give? and you mean in writing correct?
John
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
If you believe it is your moral and contractual obligation to pay the underlying mortgage payment, and you fully intend to do so, then why not give the seller this assurance? What does it hurt?
Loon... Good advice however I do my fair share of no money down deals...
My definition of no money down is;
NONE of my money down....
using someone elses money to do a NO money down deal isnt any different than a 100% sub 2 deal or 100 % seller financed deal..
But I am dumber than dirt so what do I know....
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JGK03,
Every time you get into deal mode, whether or not the deal goes through, you gain knowledge and confidence.
Keep going and much success!
Jim
I love it.... the last 5 houses I bought with 100% sub to financing and am selling sub 2 all with 15k down seller wrap buyer on the hook if the due on sale is called...
Whats great is that they are all 50-75k under value
We have started advertising my 1-888-ez-avoid foreclosure campaign and catching the people before they fall into foreclosure....
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I should have said that it is set up for them to have to cure the accelerated note or head to a foreclosure, not that they re responsible to the lender from an assumption standpoint... Sorry for the error.
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Thanks.... I now understand....
J
How is the buyer the one on the hook if the loan is still in the sellers name?
Quote:
On 2006-01-26 17:43, IBuyHousesInc wrote:
I love it.... the last 5 houses I bought with 100% sub to financing and am selling sub 2 all with 15k down seller wrap buyer on the hook if the due on sale is called...
Whats great is that they are all 50-75k under value
We have started advertising my 1-888-ez-avoid foreclosure campaign and catching the people before they fall into foreclosure....