BiggerPockets

Just discovered this was a way to aquire property no mortgage-

got a few ?

1. how do you find the sellers

2. what certain disclosures should be in the contract

3 heard I can get the deed-is that true/if so do i have to pay the property taxes if i have the deed?

4. what are the cost= do i have to do alot of repairs/or non or major or minor or what

5. is this really legal

please respond with as much detail as possible

thanks

do you realize sub2 means subject to their financing... ie you take over the owner's mortgage...

so say if someone is in preforeclosure, several payments behind, you can pay off what they're behind on and pick up the payments from there on out. i believe the bank has to approve you though.

the advantage is you usually get to steal their equity. say if they put 20k down on the house, well that just became yours, minus costs like whatever you paid to get it back up to date. i believe it is also easier to get the bank to okay this than it is to okay you for your own mortgage

Jamal,

Just do some reading here in the forums and you will see plenty of examples to learn from. As usual, Will's advice is spot on. At least talk to an attorney.

Corey, the bank does not have to approve any deal you work out with the homeowner as in this example, a subject to deal. If you wanted to get the debt refinanced, then yes, you would have to qualify but that would nullify the reasoning for doing the sub2 in the first place. If you were doing a short sale, they would also have to approve it. But in your pre-foreclosure example, you would take the home subject 2 (you would not want to lease option this home as that is not a good idea to option a home from someone who is behind on the payments or in trouble, as in this case), bring the mortgage current (including possible foreclosure costs, late fees and attorney fees) and take over the loan from there. You would then have to handle the insurance however you prefer but would get a nice asset without qualifying for a loan and with minimal out of pockets costs compared to getting and qualifying for a loan yourself. All the reasons a subject 2 deal is a good strategy for an investor.

How much you are willing to invest bringing them current is your business decision and the amount of equity you can potentially receive is a consideration that influences how much you are willing to come out of pocket for this asset. Then you can lease option the home or sell with owner financing (check your state regs as L/Os are not popular is some areas) depending on where you live or what you prefer to do. That is a short version of how it will play out. And yes, this is much easier to do than go qualify for the mortgage yourself, either through the lien holder directly or your favorite lending institution, as you prefer.

I don't think I would consider this "stealing their equity" personally but just helping someone out of a bad situation and being paid for your knowledge in this area. Of course you are making some money or there would be no reason for you to get involved otherwise. But I am sure some who consider all investors shysters may agree with that characterization. Granted, we are talking semantics here. But if someone suggested we were taking advantage of them, I would calmly point out that without us getting involved, they would have a foreclosure on their record and even worse credit. That foreclosure would almost certainly hurt the neighborhood value as well. We are helping them more than the empty promises and feel good talk of our government but I digress.

Good investing

Mike C

You don't "own the deed" or "take ownership of the loan". You own the property. The existing loan stays in the seller's name. You start making the payments. Nothing illegal.

It does violate the "due on sale" clause in their mortgage. That means the lender can choose to call the mortgage due. If you take a mortgage that's behind, catch it up, and start making payments, calling that loan is probably not a priority for most lenders right now. If interest rates jump up to 10%+, it may be a different story.

Its a purchase transaction, just like any other, with one exception. Normally, a deed is given "free and clear of all liens". The title company that writes the title insurance makes sure that's the case. In a subject to, the deed will say "free and clear of all liens except <the existing mortgage>". The title policy will also reference this mortgage.

You can pay the seller some cash, have them hold a second, or whatever.

So, Jamal, this may not be quite what you think. You say "aquire property no mortgage". Better to say its a way to acquire a property with no mortgage in your name. There is still a mortgage, and you're taking responsibility for that mortgage. You have payments just the same as if you got a loan. If you don't make the payments, the lender will foreclose and take the property. The seller's credit will take a hit and they will sue you for not holding up your end of the agreement.

I am on the Deed, I pay the bank directly. The sellers have given me POA to act on anything relating to the property. And if you live in NY (like I do) it's pretty good idea to have a lawyer involved.

Yeah, what Paul said. In other locations, you would use a title company. It really is a pretty ordinary transaction, so you would follow whatever process is used in your area. As always, having a title search done and getting title insurance is a good idea.

The POA gives you the ability to deal with anything that might come up in the future without having to track down the seller.

I kept thinking of joining this conversation but when you got a guy like Mike C handling it, there isn't much else you can say!

Great posts as always Mike! I'm doing another Sub2 deal this week (Saturday at the latest) I'll throw up the numbers for you when it closes (table top of course) but keep plugging away Mike, I always enjoy reading your posts.