Attorney did Sale Subject to Existing Mortgage Gone Bad

20 Replies

I  have been trying to Stop a Foreclosure on a "Sale Subject to Existing Mortgage" that a local Attorney prepared for me.  The Potential buyer missed a couple of payments back in August.  She Caught up the missed payments.  However, the Bank called the balance due using the "balance due on sell Clause" and now wants the entire balance or PTI of near $20,000 now to reinstate the mortgage.  The Potential buyer feels the pending foreclosure is my fault and that all payments paid were to decrease the balance due.  In Short,  the potential buyer assumes I did not pay my Note over a year as was sent to me to forward to the Bank,  ignoring the property tax, insurance and interest in the amount now due.

Question is,  who is actually  legally responsible for the default,  do I have to  return money paid by the potential buyer?  The Buyer has contacted a local Television Station and told them lies about her renting to own and me pocketing her money and not paying my mortgage.  She is living in the House now without paying anything claiming my fraud against her.  I'm trying to get the money to reinstate the mortgage or Plan to file a Chapter 13 Bankruptcy to save the house.

Has any BPer been in such a situation or ever hear of a way to resolve such a problem?  I assumed the transaction was legal as it was done by a Licensed Louisiana Title Attorney.

This is what scares me about buying subject to.  I wish you luck though. Hopefully it works out for you. 

Originally posted by @Alex Hamilton :

I  have been trying to Stop a Foreclosure on a "Sale Subject to Existing Mortgage" that a local Attorney prepared for me.  The Potential buyer missed a couple of payments back in August.  She Caught up the missed payments.  However, the Bank called the balance due using the "balance due on sell Clause" and now wants the entire balance or PTI of near $20,000 now to reinstate the mortgage.  The Potential buyer feels the pending foreclosure is my fault and that all payments paid were to decrease the balance due.  In Short,  the potential buyer assumes I did not pay my Note over a year as was sent to me to forward to the Bank,  ignoring the property tax, insurance and interest in the amount now due.

Question is,  who is actually  legally responsible for the default,  do I have to  return money paid by the potential buyer?  The Buyer has contacted a local Television Station and told them lies about her renting to own and me pocketing her money and not paying my mortgage.  She is living in the House now without paying anything claiming my fraud against her.  I'm trying to get the money to reinstate the mortgage or Plan to file a Chapter 13 Bankruptcy to save the house.

Has any BPer been in such a situation or ever hear of a way to resolve such a problem?  I assumed the transaction was legal as it was done by a Licensed Louisiana Title Attorney.

I've worked these types of situations for over twenty years.  Sale by "Subject To" means the title transferred. She isn't a "potential" buyer if it was sold "Subject To". If you did a "Lease Option" on a property that you took "Subject To" then that is different. However, whoever has their name on the loan to the bank is the one who can work with the bank to fix the problem. That person is legally responsible for the loan to the bank.  Simply selling a property and changing Title doesn't mean that the borrower's name is removed from the loan. Those are two different things.

You would need to clarify a couple of things for this to make some sense. It appears that you sold the property to her as a "Rent to Own" and she stopped making payments but brought them current, then she stopped making payments again. If that is the case and your contract allows for it, you would start an eviction. If you sold the property to her, you would probably need to start a foreclosure.  

1) Who's name is on Title?

2) Who's name is on the loan to the bank?

3) Was the loan current when you got involved?

4) How did the loan get behind?

5) Who sold the property to whom and was it actually sold "Subject To" or "Rent to Own" They are very different.

Regardless of who is on the title, I would think you would be at fault of the note being called due as you technically were not able to sell the house utilizing the existing financing in place per the terms of the contract.  She was behind on her payments, but has caught up, so it seems as if she has held up her end until she stopped paying. 

It may not be illegal to sell the home like this, but you run the risk of getting it called due by the lender-especially if payments are missed and the new owner is in contact with the lender due to the missed payments.  

If I would try to have an arrangement like this, I would probably make the payments myself and have the new owner make the payments to me to ensure things get paid and it does not lead to an issue.  

I agree with Mike - it is not a Subject to if there is a buyer - either she bought it or she didn't.  If she truly did, you are not involved anymore. If she didn't, then why didn't you control the mortgage payments?    You ALWAYS make sure the payments are made to a lender on any subject to or lease option.   I learned that one the hard way myself..... 

Is this the same one we discussed about a month ago? That one needed up not actually being a sub2, but something else.

In a sub2, title actually gets transferred to the buyer. Did this happen, or was it a lease option, installment sale, or what?

If there is $20k in arrears, someone didn’t pay the mtg. Who didn’t pay what?

@Alex Hamilton So reading everyones responses I have no idea how they infer what they do based on what you stated in your original post. He said potential buyer so why would assume that was the original seller? Anyway, I digress...

Alex, what is your arrangement with your "potential buyer"? Is it a straight lease with an option, a contract for deed, a lease purchase? That's what matters as to your potential liability to that person. Forget about TV cameras and worry about the deal. If your taxes and insurance are behind to the point that the bank is going to foreclose then get it caught up and your problem is solved. Depending on your arrangement with this "potential buyer" will determine do you evict or foreclose on them but you have got to get them out if they aren't paying. 

By the way, if this is a subject to then you filing chapter 13 will have little to no impact on any pending foreclosure action by the bank. It might delay it for a couple months but it won't stop it. Also when you say you assumed the transaction was "legal" because an attorney did it what does that mean? If you bought it then it's on you to make the payments not anyone else. How would the attorney have any impact here?

I've done dozens of subject to's and been screwed over on dozens more so if you need help or to strategize give me a shout.

Originally posted by @Alex Hamilton :

I  have been trying to Stop a Foreclosure on a "Sale Subject to Existing Mortgage" that a local Attorney prepared for me.  The Potential buyer missed a couple of payments back in August.  She Caught up the missed payments.  However, the Bank called the balance due using the "balance due on sell Clause" and now wants the entire balance or PTI of near $20,000 now to reinstate the mortgage.  The Potential buyer feels the pending foreclosure is my fault and that all payments paid were to decrease the balance due.  In Short,  the potential buyer assumes I did not pay my Note over a year as was sent to me to forward to the Bank,  ignoring the property tax, insurance and interest in the amount now due.

Question is,  who is actually  legally responsible for the default,  do I have to  return money paid by the potential buyer?  The Buyer has contacted a local Television Station and told them lies about her renting to own and me pocketing her money and not paying my mortgage.  She is living in the House now without paying anything claiming my fraud against her.  I'm trying to get the money to reinstate the mortgage or Plan to file a Chapter 13 Bankruptcy to save the house.

Has any BPer been in such a situation or ever hear of a way to resolve such a problem?  I assumed the transaction was legal as it was done by a Licensed Louisiana Title Attorney.

Every time someone touts their wholesaling scheme or subject to scheme, I'll sticky this one as yet another of countless examples of why these tactics are good until they aren't. Using an attorney to formalize something that is prohibited, doesn't make it ok to do. People get away with it every day but when they don't? The contract the attorney drew up for you is about as valuable Hillary Clinton's sworn statement that she used personal email only for personal communications.

There are flaws (or at least confusion) in your description of events. If they accelerated the loan due to sale, then they aren't offering a reinstatement for less than the balance of the loan plus fees and costs. Sounds like they accelerated due to a $20,000 delinquency on payments owed and are demanding it be paid off or brought current.

If you are the "Seller", did you pay your note over the last year? She assumed you did not pay it. Did you or didn't you pay it? You state "as was sent to me to forward to the bank". Did she send payments to you to forward to the bank? Did you receive payments from her and not forward? Did the sale agreement spell out who was going to make payments to the bank?

You only asked one question. Who's legally responsible. If you are the one on the note, you are. No matter what this attorney stated, or what you stated, or what she stated, you are.

Based on what you wrote, sounds like you defaulted on your mortgage AND breached your contract with her. I bet you'll find plenty of attorneys that will take your case and walk you all the way down the street to an empty pocket. I would hope you don't use the same one that drafted your subject to agreement.

SIDE NOTE: filing a chapter 13 could be a valid tactic. You'll have to pay the loan you have monthly, and 1/60th of the arrears on that loan plus fees/costs of the default each month, plus your other debts back. You'll also have to pay significant filing fees and you'll have to pay a good chunk of money to your BK attorney. I disagree with Robert's assertion that it won't stop it. Yes, assuming you file your plan, have your plan accepted by the trustee and perform per the terms of the plan, that will stop the bankruptcy. FILING won't stop it. It just puts it on hold until the 341 hearing but getting the plan and paying on the plan WILL stop the foreclosure. It won't stop the bleeding from what is tantamount to a non paying tenant now, or the reputational damage you caused, or the lawsuits you may be subject to (Although it might delay them) but it will stop the foreclosure.

Alex...  you should immediately talk to a lawyer.

But I do have some questions to start with here...

1)  Were you the original person to take out the mortgage on the house?

2)  How long did you own it before you did a subject to existing financing deal?

I am only asking because some people buy subject to and then sell again subject to the original mortgage.  I hope that is not what happened here.

If he is not on the mortgage I doubt him filing bankruptcy would have any impact on the foreclosure.

Originally posted by @Michael Biggs :

If he is not on the mortgage I doubt him filing bankruptcy would have any impact on the foreclosure.

 it will initially as the property will be subject to claims of the trustee but the note holder will quickly file for relief stating the property has nothing to do with the filer and will get relief.

Ron...  I would talk to a really good LOCAL bankruptcy attorney before trying that.

Originally posted by @Michael Biggs :

Ron...  I would talk to a really good LOCAL bankruptcy attorney before trying that.

 No argument with you there but even a bad bankruptcy attorney will tell the prospective client that any property listed in a bankruptcy filing will be protected until it's cleared up with a hearing. I wish it wasn't the case but I can cite countless filings from my firm where we had to go in and explain to the BK trustee that the property subject to the filer was not their property and that our property is not a part of their estate, and that we need relief to move forward with our foreclosure.

Thanks everyone, if I ever get this one cleared up, no more "Subject to" deals.  Only my name is on my Bank Note on this house I purchased back in December 2011.  The party in my house signed a Promissory Note which required  owner her to make my house payment which included Principle, Property Tax and insurance in that Note.  The $20K is an accumulation of all of this not paid since the occupant of the house stop paying.  A default on any owner finance payments required the balance to be paid in full.  My Bank has not foreclosed yet, and is allowing me to reinstate for that 20K.

Also, yes Wayne Brooks this is the same property we talked about when the Bank was requesting $15,000

Alex Hamilton so why would you do a subject to on your own property that you hold the note on? As an investor why? Hmmmmm Wow!

@Ron S, isn't this an example of bad facts making bad law? That is, as I understand Subject 2's, they are useful when the buyer/investor is the buyer of the house Subject 2 the seller's existing mortgage and the buyer/investor, in order to ensure the payments to mortgage company, pays the mortgage company directly. Seems to me that Alex did a "reverse" Subject 2 in which he was the seller and selling his property subject to his mortgage - which seems extremely and patently dangerous to rely on the buyer (who is buying using creative financing because she, apparently she could not get conventional financing) . @Robert Glilstrap, you write that you have"done dozens of subject to's and been screwed over on dozens more", when you have been screwed has it been as a buyer /investor or a seller? 

I ask because I see an opportunity for Subject 2's (under the right circumstances - the primary one being that I have total control ) and i am trying to learn as much as possible so I would really appreciate to read about your horror stories.          

If I recall from the posts a month ago, this was not actually a sub2, but a lease option type deal, title did not transfer.

The biggest mistake here was allowing/assuming the “buyer” was making payments directly to the lender, and not verifying they were being made.

I’m guessing the due on sale clause is not the issue here but it is the $20k arrears of course.

Just a thought, but maybe best to also not market for passive investors on the BP marketplace when you are considering filing for bankruptcy/having issues paying your mortgage 

Originally posted by @Ken Vance :

@Ron S, isn't this an example of bad facts making bad law? That is, as I understand Subject 2's, they are useful when the buyer/investor is the buyer of the house Subject 2 the seller's existing mortgage and the buyer/investor, in order to ensure the payments to mortgage company, pays the mortgage company directly. Seems to me that Alex did a "reverse" Subject 2 in which he was the seller and selling his property subject to his mortgage - which seems extremely and patently dangerous to rely on the buyer (who is buying using creative financing because she, apparently she could not get conventional financing) . @Robert Glilstrap, you write that you have"done dozens of subject to's and been screwed over on dozens more", when you have been screwed has it been as a buyer /investor or a seller? 

I ask because I see an opportunity for Subject 2's (under the right circumstances - the primary one being that I have total control ) and i am trying to learn as much as possible so I would really appreciate to read about your horror stories.          

 Maybe it's an example...as you state. My only complaint about subject to is that again, they are only good until they aren't anymore. Yeah, same with a mortgage but at least with a mortgage, as long as you perform per the terms of the note, no one can do anything to you, but with a subject to, you can perform all you want, the lender can still accelerate. Buyer paying to the mortgage company directly is the proverbial salvo over the bow of the lender alerting them to the subject to. Will they accelerate? Maybe not but if they do, and you don't have the exit strategy to pay the note off or cancel the subject to immediately, it could be financially disastrous for both parties.

In the old days, subject to were great for buyers that could afford to traditionally finance a purchase but chose not to because terms of the existing note were too favorable. In today's world, many subject to transactions are because the buyer cannot obtain traditional financing and/or the subject property is not eligible for traditional financing because of condition. That's a house of cards to me, that I see falling way too often. Just my two cents.

@Ken Vance just reiterating that when you go into a subject to if you don't have your paperwork in order you can lose (and I have). If you want to talk subject to's then hit me up because there's waaaaaay too much to talk about and I'm a lazy typist.

I spoke with @Alex Hamilton on the phone (until we got disconnected so Alex feel free to call me back) and he basically sold his property on a wrap to this occupant buyer. She hasn't paid in 5 months and thus he hasn't paid his underlying obligation in 5 months which is the crux of the issue. There is not $20K in payments behind only about $3,300. The rest is in a recapture of property taxes that his taxing authority is attempting to get him on from when the property was previously being taxed under an exemption status (until he sold it). I believe he can appeal that and work out the tax situation so thus he only needs to pay the $3,300+/- to get back on track. BUT he still needs to foreclose on this occupant who isn't paying. So big picture, this is not a huge problem (assuming he has some $$ laying around to solve it). If not then Alex, you need to seek out a $$ partner to salvage the deal. Depending on the value of the underlying property I might be interested but certainly someone will be. We're not talking about a lot of money here.

@Robert Gillstrap, thanks for the response. I would like to discuss subject2s with you one day. In the recent months i have had 2 opportunities to go down this path - but I passed because of the unknown risk. But, maybe it is a sign of the things to come, but i think there may be more opportunities and i want to hear as many horror stories as possible so i can make an "informed bad decision".    

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