Subject To Purchases - Disclosures and Protections
Hi there,
I read in a couple of posts and listened to show 70 about subject to deals but didn't find these questions answered. I wonder if you fellow BPers might be able to help me understand a few elements of subject to deals that I haven't been able to find firm answers to yet.
1. In California, I’m under the belief that when you disclose the take over of the loan while in escrow to the lender that the lender has a certain time-frame in order to request a revision of the existing lien. Once that time-frame expires (90 days in CA if I’m not mistaken), then the lender forfeits by default their ability to call the note due to the take over and change in ownership, thus eliminating the risk for the note being called at a later date for this reason. Is this true?
2. In the interest of full disclosure and risk mitigation, don’t you always want to notify the lender of the subject to arrangement? That would also start the clock ticking for them to “[bleep] or get off the pot” with their call of the note too, no? ... thus further avoiding the risk of having the note called unexpectedly down the road.
3. Despite the points in question 1 (assuming their accurate), the lien holder often also places restrictions on further encumbering the property, say, with seller financing or a second position loan to cover the equity spread for instance. This too gives them the right to call the note due if you do so. I suppose you just work through it with the primary lien holder in that case to either restructure the loan or find alternative financing? Granted, you’d lose the amortization benefit I suppose. Restructuring would be most beneficial for the lender because they can do so without losing their first position from what I understand. But what is their incentive for wanting to work with me as a buyer to enable this transaction to go forward in the first place?
4. Perhaps most important to the seller, they remain liable for the mortgage on paper… that is, it’ll show up on their credit report until paid in full (or worse, defaulted, foreclosed and written off). This also creates a hardship for the seller in trying to buy their next house and move on with their life. How would you address this hurdle with/for them? I’m under the impression that there is a document that you can provide to them absolving them of the payment responsibility when they apply for further credit. But doesn’t that have to be also signed by the lien holder too?
I appreciate you taking the time to help me. I look forward to the feedback.