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Mortgage Assignment Contract Overview?

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Mike Ducasse

Real Estate Investor from NY, New York

Dec 02 '10, 04:03 AM


I have been inquiring about this new method of real estate investing. Is there anyone here on BP who's familiar with doing Mortgage Assignment Contracts? If so what are the pros and cons? I want to start doing this because opportunity seems priceless, if anyone can touch on this subject matter it would be greatly appreciated.

Thanks



Jason Wheeler

Real Estate Investor from Pleasant Hill, California

Dec 02 '10, 04:05 AM


Taking over a good mortgage is a great way to gain control of the property. Do you have any specific questions on the subject. What state are you looking to do this in?



Mike Ducasse

Real Estate Investor from NY, New York

Dec 02 '10, 06:19 AM


Well as I've stated I'm new to this way of investing. What would be if any out of pocket cost I would have to pay in order to make a transaction such as this work bet. the buyer and seller? Do I even need money? I would be looking to do this in NYC, NJ & Atlanta for now.



Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Dec 04 '10, 03:34 AM
4 votes


I listened in on a webinar by Michael Kimbel and Phil Grove on MAPS (Mortgage Assignments). From what I can tell just by listening, this is nothing more than buying a property sub2 and assigning the contract to and end buyer. There was no mention of working with the lender in taking over the loan. I'm not sure why this is even called a mortgage assignment. I admit, I have not read the materials or reviewed the contracts so I may have missed something, but I don't think so.



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Dec 04 '10, 03:48 AM
5 votes


Sounds like an old technique (subject to) with a new name.



Jon Holdman, Flying Phoenix LLC


Bryan A. Donor

Real Estate Investor from Charlotte, North Carolina

Dec 04 '10, 03:56 AM


is that what they're calling sub3 now? or is that something else??



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Bryan Hancock

Real Estate Investor from Round Rock, Texas

Dec 04 '10, 04:37 AM
6 votes


A mortgage assignment is not new. All this is is placing a property under contract subject-to and assigning the contract to and end buyer. This is basically the same thing as brokering properties with "seller financing."

The reason this technique is popular right now is that there were many low down payment loans made on property that now has little, no, or slightly negative (not enough for a quality short sale) equity. The seller needs to leave for whatever reason and can't sell their house because they don't have enough equity to pay for the transaction and broker costs. Investors that find these deals can show the seller how to sell using their existing financing and make a "wholesale fee" for doing so.

Subject-to deals were traditionally done on property with more equity and an investor would buy the equity at a large discount. It doesn't make sense for an investor to stomach all of the debt on the property if they aren't buying equity at a discount for these properties so they instead act as a "principal/broker" by wholesaling the property to a new buyer. Think of the investor as a broker that demonstrates seller financing to the original seller and wrap notes or installment sales to the new buyer.

You may ask yourself why agents aren't doing more of this. I have heard of several that are, but my guess is the real estate commission folks don't like them because these contracts violate the due-on-sale clause in almost all instances. If you do something like this you will want to get a mound of paperwork to protect yourself if the original seller ever has their note called!



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://tinyurl.com/inner10invest
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Dec 04 '10, 04:14 PM


Originally posted by Jon Holdman:
Sounds like an old technique (subject to) with a new name.

Exactly! Much the same as "wholesaling lease options." :-)



Mike Ducasse

Real Estate Investor from NY, New York

Dec 04 '10, 11:36 PM


Thanks Bill & Brian for that in depth review on this form of real estate investing.



Mike Michaud

Residential Real Estate Broker from Bonham, Texas

Dec 05 '10, 11:43 AM
1 vote


This is not new at all. It is a concern to me as a licensed RE broker in Texas. Even if I do a deal for my own portfolio and do not represent any parties to the transactions, I'm very concerned about the liability if something blows up.

The other issue I can see coming is with this government crap about controlling everything in RE transactions concerning home purchasing. We may find this outlawed soon as we have land contracts and much of the owner financing.

Otherwise, this technique has merit.



Carlos Zorrilla

Real Estate Investor from Chicago, Illinois

Dec 06 '10, 02:09 AM
1 vote


Hello!
I am new to Real Estate Investing, and this is my first post in this forum!

I have a couple of questions also regarding these Mortgage Assignments, after also watching Michael Kimbell's webinar:

Who's name is on the loan?

If the buyer defaults, how is the title returned to the seller? And who long does it take for the title to return to his hands? (By this, I mean, will the seller have to foreclose on the buyer? Doesn't this take a really long time?)

Does the buyer ever get the loan in his name? (say after a few years?)

What happens if the owner of the mortgage dies? Who ends up with the house/title/loan?

I am confused, as I have heard that banks are not allowing assumable mortgages, or perhaps I'm not understanding the maneuver.

Thank you for your help!



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Dec 06 '10, 03:09 AM
2 votes


Welcome Carlos!

Originally posted by Carlos Zorrilla:
Who's name is on the loan?

The original seller’s name(s) will remain on the loan or whatever entity that originally obtained the financing in the cases where there is an entity involved. Some of these cases involve personal guarantees as well.

Originally posted by Carlos Zorrilla:

If the buyer defaults, how is the title returned to the seller? And who long does it take for the title to return to his hands? (By this, I mean, will the seller have to foreclose on the buyer? Doesn't this take a really long time?)

A foreclosure will be necessary IF the title is transferred. Executory contracts that include lease/options longer than 6 months, contracts for deed, etc. are not permitted in some states like Texas. Assuming you transfer title you will have to foreclose.

Some states have a lengthy foreclosure process and some don’t. It really depends on where you live. Keep in mind that there are other MAJOR risks like the new buyer declaring bankruptcy to stall the foreclosure via a stay from a judge. If you and/or the original seller is stuck making these payments while there is no mortgage money coming in then this is a huge risk that should be mitigated via paperwork your attorney prepares. Bankruptcies are much more common with people with bad credit so this risk should not be dismissed summarily.

Originally posted by Carlos Zorrilla:

Does the buyer ever get the loan in his name? (say after a few years?)

It depends on what is negotiated and how the deal is set up. If there is a balloon in the new note written that is the easiest way to accelerate the note and foreclose if the buyer doesn’t perform as negotiated. Bubbles, adjustable rates, etc. are also things I see frequently.

Originally posted by Carlos Zorrilla:

What happens if the owner of the mortgage dies? Who ends up with the house/title/loan?

I am assuming you mean the mortgagee and not the mortgage. This varies by state law too and is no different than any other situation where someone dies.

Originally posted by Carlos Zorrilla:

I am confused, as I have heard that banks are not allowing assumable mortgages, or perhaps I'm not understanding the maneuver.

Ahh…the questions were all simple until this one ;-). Read through the forums. There is literally two books’ worth of information on the due-on-sale clause, arguments for and against use of trusts, disclosure opinions, etc. The short answer is that the bank doesn’t have to approve things and retains the right to call the note once the property is sold.



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://tinyurl.com/inner10invest
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


Carlos Zorrilla

Real Estate Investor from Chicago, Illinois

Dec 07 '10, 06:29 AM


Bryan, thank you very much for your answers!

If I may pick on your brain for a little bit longer, I have a couple more questions... in some degree the Mortgage Assignment makes a lot of sense, and in others it just seems nonsensical!

If the buyer does not have title, what happens if he defaults?

In the case of the buyer, does the title have to be transfered over to him? Your response made it seem like not always. Will a buyer agree not to take title (and thus any claim on the property) for 10-15 or even more years?

What rights does the buyer have over the property?

What rights does the seller have (if he still has title)?

What if the buyer wants to sell the property?

Thanks again, and I will begin scouring over the forums in order to learn some more!



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Dec 07 '10, 07:07 AM


Originally posted by Carlos Zorrilla:
If the buyer does not have title, what happens if he defaults?

It depends on how the transaction is set up. You really need to speak with an attorney. For instance, in a lease/option (no title transfer) you would simply evict the tenant. In other cases the contract should govern what happens.

Originally posted by Carlos Zorrilla:

In the case of the buyer, does the title have to be transfered over to him? Your response made it seem like not always. Will a buyer agree not to take title (and thus any claim on the property) for 10-15 or even more years?

The title has to be transferred if state law says it does. This is the case in certain scenarios in Texas. I don’t know your state’s laws well so you need to speak with an attorney. There are many exit strategies where the “buyer” (optionee?) doesn’t take title.

Originally posted by Carlos Zorrilla:
What rights does the buyer have over the property?
What rights does the seller have (if he still has title)?

My apologies…but these questions are too vague to answer. It depends on how things are set up.

Originally posted by Carlos Zorrilla:
What if the buyer wants to sell the property?

If he owns the property he sells it. If he doesn’t, he can’t. There is nothing magical about seller financing and it can have prepays or anything else a “regular” loan has.



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://tinyurl.com/inner10invest
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


Carlos Zorrilla

Real Estate Investor from Chicago, Illinois

Dec 09 '10, 05:00 AM


Thanks again Bryan!

I can only notice how much I still have to learn...

I appreciate your answers!



Larry Oringale

Real Estate Consultant from Dallas, TX

Dec 15 '10, 04:40 AM


I went and read a paper at http://www.mortgageassignmenttruth.com

I am not convinced that the MAPS is all it is cracked up to be.

Larry



Bill Walston

Real Estate Investor from Northeast TN, Tennessee

Dec 18 '10, 10:13 AM


Originally posted by Larry Oringale:
I went and read a paper at http://www.mortgageassignmenttruth.com

I am not convinced that the MAPS is all it is cracked up to be.

Larry


Thanks for sharing Larry. The article was quite interesting. I agree with the author's major premise and most of his/her reasoning. It's been said before, MAPS is just a new twist to a technique that's been used for years. Indeed, it's not what it's "cracked up to be."



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Dec 18 '10, 11:50 AM
3 votes


That article is pretty good! Here are some issues with it though:

1. The parts about the bank *having* to call the note are simply untrue. The servicers know what is happening in these deals and they often don't call the notes because it is not in their financial interest to do so. They lose their fee for servicing the note if they do so

2. The lease-option "solution" is also false. Any option violates the due-on-sale clause and has the same problems that a subject-to purchase, wholesale owner finance (WHOF or "mortgage assignment"), contract for deed, etc. strategy does. If you don't believe me see for yourself:

§ 1701j–3. Preemption of due-on-sale prohibitions

The simple fact is that there are very real risks with this strategy. Not only are you dealing with the traditional idiot sellers you are also dealing with non-credit-worthy buyers. Pairing the two of them together with or without a servicing agent is a ticking time bomb for a small wholesale fee. Do so at your own risk!



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://tinyurl.com/inner10invest
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


Bill G.

Real Estate Investor from Springfield, Missouri

Dec 18 '10, 10:28 PM
1 vote


Hi, yes seems like old stuff with a new spin. 2 reasons to post, one, for the benefit of new investors, let's get our terms properly applied. Assumption and assignment are not the same thing. And, while a foreclosure is generally required to take title arising from a defualt, it is not necessary if the security agreement provides for a deed in lieu of foreclosure and a quit claim deed is attached and held in escrow, such being agreed to between the parties.

Bryan, glad you posted the due on sale clause info as that should clear up discussions here! As I have said, it is not required, it depends on the current rate and the terms.

Also note, it specifically described any lease grewater than 36 months AND CONTAINS an option to purchase. Seems like a good reason to have seperate agreements.

Thoughts: the use of a trust where the beneficiary remains, initially remains, but as we know, beneficiaries can later be changed and such are not made of public record and if required, are not filed to real property, just a line of thought there!



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Dec 19 '10, 03:15 AM


Originally posted by Financexaminer:
Also note, it specifically described any lease grewater than 36 months AND CONTAINS an option to purchase. Seems like a good reason to have seperate agreements.

You may want to read it again Bill:

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

The passage above says NOT containing an option to purchase. ANY option to purchase violates the due-on-sale clause regardless of whether or not it is exercised. Without recording the option I have no idea how the lender would ever know about it, but it violates the clause nonetheless. This is all really academic because the lender's servicer is the entity that would know about this and they aren't going to exercise the option to accelerate for reasons stated above.

It is good to have separate agreements to keep the tenant/buyer from having equitable interest in the property which would necessitate a foreclosure if the guy in the robe decided such interest existed through "rent credits" or some other substantive reason.



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://tinyurl.com/inner10invest
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


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