Hello everyone, I am completely new at this, just began researching different aspects of REI a few days ago, so bear with me if i seem like a numskull.
I have been able to find information on most RE subjects online, but I am having trouble with one in particular. I heard through an aquaintance, whom i can no longer get in touch with, that it is possible to create a deal with a homeowner, who has missed a couple of mortgage payments and is in danger of foreclosure, to give a cash incentive and take over his payments to the lender and he signs over the deed to his house. Basically, I am wondering if this is legit? do people actually do this or was my aquaintance just blowing smoke up my bum? if so, what is the legality behind it? is it possible for a borrower to simply transfer his loan into someone else's name? I appreciate any and all information you all can give me on this topic. Thanks for your time.
What you are describing is called an assumption. They are out there and I am sure that a number of people on this site have made money off of them. I'll let the mortgage experts weigh in on this better than I can, but I believe most mortgages now-a-days have assumption clauses that preclude this.
The bank would want to know about this. So going under the radar is ill advised.
Thanks for your help Doc,
Well, with that being said, do any of you mortgage experts out there know which banks in particular (preferably in the NY/NJ area) that do not have assumption clauses? Also, with that information, how would I go about initiating an assumption? How much liquid capital would one need for such a thing? What should I look for when researching potential properties to assume? Again, any information beyond that would also be greatly appreciated. Thanks a lot.
I remember when assumptions were one of the main tools used by someone with credit issues wanting to purchase a home. Those where the days....non-approval assumptions were what they were called. Pres. Reagan eliminated those great mortgages during his administration along with writing off interest on credit cards, auto loans, and extended income averaging.
Anyway.... the loan products of today which are assumable require lender approval. Depending on rates and terms it may be better to take out a new loan. I agree that it's usually better to deal with the owner prior to foreclosure. It should be an easy task to look at the loan documents and determine whether or not it's assumable. Or just have the current borrower call the lender and ask. If so they (the current lien holder), will send you out a loan package or maybe gather your info over the phone. I would probably refrain from giving the owner any upfront cash or tampering with the deed without prior lender approval.
It is also called a sub 2 and the deal has no involvement with the bank. It is a contract between the owner and the investor that wants the property. Essentially the owner agrees to sign over the deed to the investor who in turn pledges by contract to make the payments until he sells the property. The investor may need to put money in the owners hand or the owner may be very motivated and just sign over the deed. (that is the best case) You want to find mortgages with good terms to try to either owner finance or rent. Or you want to get the house in order to flip. All being done with very little out of pocket.
If there's a lien on the property....the lien holder is involved whether you want them or not.....I would check into that little term called acceleration.
In the sub 2 the original owner continues to keep the original note in their name and the investor makes all payments on the property. it is truly a contract between the investor and the owner. The owner still has the obligation and must make sure the investor is not screwing him over by making late payments or none at all. Yes any lein holder will want to be cashed out when the loan is paid off but in this instance the loan isnt paid off, only transferred by contract to the investor. Owner places some trust in the investor and must make sure that the payments are being made on time and the taxes, HOA fees etc area all being kept current. The issue of acceleration could come into play but my guess is as long *** the bank is getting there money they dont care who is making the payments. Yes you as an investor will need to make sure you arent going to be on the wrong side of an prepayment penalty or acceleration in the event your exit strategy is to resell.
Well in NY also do not forget that as of Feb/07 they have the new bill from the Pataki (spelling?) http://senatorlavalle.com/press_archive_story.asp?id=14651
so just beware also with this there is a letter you will have to have people sign a letter stating that they should consult with a lawyer and more legal jargin and then from there they have 5 business days to cxl the contract... So now you need to buy the house from the person instead of giving the homeowners cash to walk away and QCD the property to you and all the other ways it was done before with taking over the mortgage in NY. i forgot the bill number but you can find in a one of the NYS websites. Hope this helped. Because if you were to get the property from someone with a QCD and others you would be stuck if 5 years later they consult a lawyer they have rights to the property still.
thank you, you have all been very helpful. A couple more questions though. What is acceleration (like i said, I very new to this)? Is a contract usually necessary? If so, is there a way to make one without a lawyer?
Acceleration can occur when it is written into the original contract with the owner that a particular circumstance occurs and the bank accelerates the loan. That is they want all the money now. I havent seen it much but it happens.
If you are wanting to do a sub 2 then I would say you need to get all the correct documents in order. If that means you need to visit an attorney then do so. It will be money well spent when you consider all things. There is alot of info out there on the deal and just as many people that put on seminars to learn the process. Research it first and decide if that is a method of your REI business you want to approach. I think it is worth knowing the details of the transaction just in case you come across situations that you can use it for.