What are my options?

Question

I have a homeowner in Northwest Dallas who owes $132K but the comps are around $109K. I know I can not make a cash offer so what are my options?  I have been told by a cash buyer that taking over payments is illegal.  
I was told to read up on WWW.Notecircle.NET. "A Lender may, at its option, declare immediately due and payable all sums secured by the Mortgage upon the sale or transfer, without the Lenders prior written consent, of all or any part of the Real Property, or any interest in the Real Property.  A reading of the language shows that the term, due-on-sale is misleading. In fact, the mortgage may be called in if there is any transfer of any interest in the real estate, and not just a sale of the property."  I am reaching out to you guys since the local assistance rearely call back. Help a wholesaler out!

Thank you,
Patrick

Tyler H. · Answer

Taking over payments is not illegal.  The lender could exercise their "due on sale" clause if the seller deeded you the property, but they have no reason to if the note is being paid on time. Lots of these deals out there, so make sure the owner is motivated--taking over payments (then putting an owner finance buyer in place with downpayment, via a wrap) or a short sale are the only options here.

J Scott · Answer

Given the amount owed and the market value (and the big difference between the two), your best bet is probably to try to negotiate a short-sale with the lender for a price that would allow you to resell the property for a profit.

Jimmy C. · Answer

You gotta do a short sale.

And its not illegal to do a subject to deal.  The lender can call the loan whenever they want, but they probably wont do that.

But dont take the payments over on this one, because then you are making his problem your problem (no equity)

Jon Holdman · Answer

Exactly.  A short sale and a subject to don't go together.  A short sale requires the loan be paid off while a subject to leaves it in place.  Since the value is so far below the mortage balance, a short sale is the only hope of getting a deal on this property.

A subject to with an underwater property might make sense if the property is only a little underwater and the loan has very good terms.  Like a long, fixed rate loan at a very low rate.  The buyer is still overpaying, but if the buyer has no hope of getting financing, it might be acceptable.  There is more risk in this case because if the lender does call the loan then there's little possibility of refinancing because the buyer is already too weak to borrow and the value doesn't support a refi.

Bill Schultz · Answer

Thanks Jon

So your not saying a short sale cant be be attempted in this situation, just not in conjunction with the sub2?   I originally thought you were saying you couldnt even try a short sale.

Jon Holdman · Answer

A short sale is working out an agreement to purchase the property for less than what's owed.  But it is a purchase, and the buyer has to actually pay the agree-upon amount.

A subject-to purchase doesn't involve the existing lender (well, see other posts on possibly notifying the lender of what you're up to.)  The existing loan stays in place.  With a deal like this, where the loan balance is $132K and the property is worth $109K, a subject to makes little sense because you're going to be on the hook for the full loan amount.

Now, I suppose its possible to negotiate a loan modification and get the principal balance below the value and then do a subject to.  But if you start a conversation with the bank like "I want to do a short sale on this property and take it subject to your loan" you're not going to get very far.

Bill Schultz · Answer

Hi Jon

Isnt that what a short sale is, a buyer trying to work something out with the sellers lender?

Jon Holdman · Answer

A subject to makes no sense in a situation like this.  You're taking responsibility for a loan that has a higher balance than the property's worth.  Yet you're not really in a position to try to work anything out with the lender, since, as far as they're concerned, you're not the borrower.

I don't see a positive outcome to a situation like this short of speculating on the value increasing enough to be more than the loan amount.

Doug Haisten · Answer

Jimmy & Brooks,
have you done a subject to deal similar to Patrick's situation?

Doug

Brooks Conkle · Answer

Jimmy hit it straight on.
Best of luck to you!

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