I am considering a subject 2 property deal and friend suggested coming here to put my concerns out there.
If I default on a subject to deal what will happen? Will the 'seller' be able to take back the property?
I consider "subject to" to be very predatory.
A buyer is taking the only asset the seller has "the house"
While still leaving the seller with all of the liability.
To answer your question, no, they have little recourse to "take back the house" its not theirs anymore. The bank can, but the seller cant. I'd check local laws, thought, some states have changed some things since I was doing those regularly.
I don't know that I'd call them predatory. I was buying them out of foreclosure, catching up pays and making payments for other people, so my guys were better off, although I was close to defaulting on a few when the crash hit. I imagine a lot of people that sold sub2 got screwed in that mess. I wouldn't hesitate to buy a flip Sub2 these days, but I'd personally no longer use it as a long term strategy.
No, the seller cannot take the house back with a subject to transaction. If they did a wrap mortgage, they would have a security interest and would have the right to foreclose. If you don't make the payments, the lender will foreclose, take the house from you (causing you to lose any money you've invested) and wreck the seller's credit. If you are not absolutely, positively sure you can make the payments, don't do a deal like this. Period.
Jon Holdman, Flying Phoenix LLC
Hey John, that's one of the best ways to acquire a property. Make sure you take care of the payments so things go smooth. It'll make it easier for the next investor doing a subject to in your town once things go good with yours. I will say, around here, attorneys are suggesting to make sure you give some $ to the seller or some type of consideration when you take title so it's not a "something for nothing" type of deal for the seller. We always give the seller money at closing so we're both getting something out of the deal, even if there's no equity. Make it happen....
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