Contract section question...

EXISTING MORTGAGE (s): Existing financing on subject property will be current in all payments of principal, interest, late charges and escrow amounts required by the mortgagee. Escrow balance has been calculated into the price and will transfer to the Buyer along with the title. Buyer will take title subject to his debt.

Does this mean that if the seller has a mortgage, the selling price is to cover, at the very minimum, the payoff value of the house (including principal, interest, late charges), plus any " escrow" amounts the seller wants?

Or does it mean that before close, the seller has to be current on all payments of the house including principal, interest, and late charges? Because if thats what means, then...isnt it impossible then to sell a house that you are in (pre)foreclosure on because being in (pre)foreclosure basically means you are behind on payments and the reason you are selling it is to avoid actually taking the hit of the house being taken away.

I dont know, maybe I'm just an idiot, but the wording of that section just came off weird to me.

Edited: 06/26/2010 at 04:52AM

Brian Christensen

Real Estate Investor · Elgin, IL

42 posts
1 Award

Icon_minipost Mar 15 '08, 12:55 AM

17 views and no response yet?....wow.

I think I figured it out that it just means that everything has to be in good standing with the selling price of the house.

I cant by it for 100 if they owe 120 in other words.

Edited: 06/26/2010 at 04:52AM

Ryan Steele

Real Estate Investor · Chicago, Illinois

957 posts
96 Influence
3 Awards

Icon_minipost Mar 15 '08, 02:19 AM

Now, I am not an attorney and all contracts should be run through an attorney first. Just remember $300 spent now will save you thousands later.

However, to me the key is the last sentence where it means take title subject to the debt. Remember there are two documents. 1 is a title, and the other is the debt or mortgage which is a lien against that title.

So you will take title and leave the existing debt in place. Therefore you will be making payments on the mortgage, this is known as Subject To.

This is why you need to get out and educate yourself. Get out to real clubs, network with people. I love Bigger Pockets and it is a great resource, but it only goes so far.

Edited: 06/26/2010 at 04:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

11859 posts
75537 Influence
15 Awards

Icon_minipost Mar 15 '08, 02:23 AM

Well, where did you get this contract? It does seem oddly worded. It almost seems like its intended for a " subject to" deal.

EXISTING MORTGAGE (s): Existing financing on subject property will be current in all payments of principal, interest, late charges and escrow amounts required by the mortgagee.

This part is just saying the mortgage payments must be current.

Escrow balance has been calculated into the price and will transfer to the Buyer along with the title.

This sounds like any escrow on the existing mortgage gets transfered from the seller to the buyer. This is what makes me think this is for a subject to deal. In a normal " seller pays of their debt, buyer gets a new mortgage" situation, you would not do this. The seller's escrow account and the buyer's escrow account would be handled independently. This makes me think this is intended to clarify that in a subject to deal, the escrow account balance is transfered along with the property and the existing mortgage.

Buyer will take title subject to his debt.

This part doesn't make sense. For one, why would a contract ever use the word " his" ? Contracts are written with " buyer" and " seller" or some other term. Those always get defined in the first part of the contract, and then the very specific term is used throughout the rest of the contract. Read literally, this sounds like the buyer is 1) a guy, and 2) getting a new mortgage. I wonder if the correct word is actually " this" . That is " Buyer will take title subject to this debt" , " this debt" referring to the " existing mortgage" named in the heading of the section.

Then, the whole section makes more sense. It would then say the contract is to acquire the property subject to the existing debt, the payments must be current, and the escrow balance goes along with the transfer.

Jon

Edited: 06/26/2010 at 04:52AM

Jon Holdman, Flying Phoenix LLC