Hello! My first post, need help with a subject-to wholesale AKA mortgage assignment deal
Real Estate Investor · Honolulu, HI · Member since 2010 · 28 posts · 12 votes
Aloha from Honolulu! Excited to finally be posting on this forum....My partners and I recently got a property under contract, structuring as a sub-to wholesale, which would be first for us. Already found a buyer (would be owner-occupant), but now all of a sudden the seller has announced they will be filing for Ch 7 bankruptcy! :cry: We knew that pmts. on property would be behind starting next month, goal was to get buyer in before then. Now what? Of course we will be honest with the buyer, just wondering if this is even still a deal. Not very knowledgeable about what can happen in a situation like this. House doesn't have a ton of equity, if any. How much risk is there of the house getting seized or foreclosed on, even if new buyer is good on making pmts.? Appreciate any advise, opinions, or comments. I don't mind feedback whether positive or negative, still fairly new at this.
Ah...this is one of the main things that gurus gloss over for subject-to deals! It is nice that it happened up front and not years down the line!
You probably need to engage an attorney here. My understanding (I am not an attorney) is that there is an automatic stay issued in these situations until the creditors are satisfied. Your contract probably isn't going to mean much and the deal will likely be lost.
How lucrative is the deal?...Seems skinny from your description. If it is skinny my advice would be to move on the the next one and avoid the brain damage of dealing with the bankruptcy. If it is fat you may engage an attorney to see what your rights are with the contract and how things will play out for the bankruptcy.
I have done a ton of these deals and have been fortunate enough to avoid the bankruptcy problem so I am interested to see how this turns out for you. Perhaps others with more experience here can post to share what they found.
Thanks Bryan,
Assignment fee is $10K, which the buyer had no problem with. Based upon your feedback, I'm inclined to think we should just drop this deal and go on to the next....
I like hearing the you have done a ton of these deals. Not sure if you've heard of it, but our contract is from Kris Kirschner's wholesaling course (yes, a Guru, big surprise!). The contract structures in a small seller carryback note that the new buyer also needs to pay as a small added monthly amt., but if he/she defaults, seller has right to foreclose and take property back.
However, I've listened to another pro on BP, Jason Hanson, on his youtube videos, who also includes a clause requiring new buyer to refinance into a new loan within 5 yrs. Just wondering how that could be enforced, and what your thoughts are for how to best structure the contract to protect the seller (and your reputation.)
Again, thanks for much for your input and insight.
You're welcome Matt...that is what BP is for!
You really need to check with a Hawaii-based attorney on some of these questions. The laws vary from state to state appreciably so I'm not sure that I will be able to help a whole lot.
I am very familiar with Kris Kirschner and all of the contracts and systems. He actually has a screening service if you ever get interested in limiting who you get calls back from.
That isn't how we structure our transactions in Texas. Texas has weird laws though and they like for the new buyer to have ownership so your strategy may work fine for Hawaii. In general, if the foreclosure is going to take a long time it is better to keep title in the name of the person that is doing the installment sale. In this case that would be the seller that is declaring bankruptcy so I don't see how it will work. Are you doing the mortgage assignment to avoid taking the payment liability for the note due to thin equity?
We put balloons in MOST of our wrap contracts because they protect one from interest rate risk and make the note more salable on the market if need be. It also helps to break the note up so that the first is easier to sell. I generally don't intend to sell the note so I just do one note with a 2-yr adjustment or balloon depending on the situation.
For enforcement...this will depend a lot on your state. In Texas I can foreclose very rapidly in the event of non-payment. So if the balloon comes and they don't pay I have a pretty big stick to hit them with.
Make sure you get as many disclosures up front as possible, especially if you are doing a mortgage assignment. You should also look into having a company service the note for the seller so that they don't have to deal with payment collection or reporting to the IRS.
Hope that helps...Please post more if you need more help.
Hi, off the subject of gurus and to your question: You need to talk to the Trustee (and/or you're seller's attorney) and let them know of your contract. It is a liability or an obligation, but the court does not have to go with your deal, they can order it sold.
If the property was owner occupied, the seller may have an exemption that will apply, if it is an investment asset it might be sold for the benefit of creditors. The property will be appraised by the court and a determination will be made. I think that if you are netting 10K as an assignment fee, it will be a toss up, since the court can easily have the property sold and provide that 10K to creditors. If your fee is in line with that of a Realtor, your chances are much better, IMO. Many variable here, talk to the seller and then his attorney, the attorney can tell you what your chances are, but no guarantees. Good luck, Bill
Bryan and Bill, thanks so much for your further feedback.
Yes, already using Kirschner's Autopilot system. Seems to be doing OK, as long as you do enough marketing to get a decent volume of leads, not getting as many as I'd like yet. Using both websites & live operator service. Will probably eventually go with a more customized site, as our company gets larger.
Already started checking into using servicing company, whether this deal works out or not, we think the current market seems good to pursue more of the same in the future. The one we think looks interesting is First American Finance Corp. I will plan to call them next week. You guys heard of them? Also talked earlier today we should consider to write in a balloon pmt. after 3- 5 yrs , to make the new buyer refi out once they can qualify...that's our idea anyway, also to have attorney verify everything's good (right? :D ). One of our company members is also a loan officer who can do credit checks and is knowledgeable about credit repair. Have another lead that is a military family wanting to transfer back to mainland, but stuck with a property they can't sell due to no equity. I imagine that could end up being a large portion of these types of deals, once we get better at marketing for them.
Yes, reason for assignment on this particular deal is thin equity. We originally tried to do a lease-option/wrap, realized the market could not bare what we would need for ROI to make it worth our while. Intent is to disclose to buyer what is going on. If she is still interested, then we'll look further into, but at this point I think it's probably not worth the headache, although would probably make for a good case study :mrgreen:
I agree that it isn't worth the brain damage on this one. You may try to see if the trustee will talk to you about something like this, but my suspicion is that he/she will want the debt discharged to agree to selling the property. I don't really have experience with this though.
Thanks Bryan, you are very helpful! I hope there is some way I can help you in the future.
Awesome Topic guys.
I have yet to have a seller file for bankruptcy so please keep us up to date if you are able to salvage this one.
But I am sure it will come up sooner or later.
What the average price of the homes your are working with in Hawaii?
Karlos
Sorry Karlos, I know this response is very late.
This deal actually never went through. After my marketing brought the seller lead in, my partner got it under contract, and then my marketing brought the buyer lead in, I met w/buyer who flew over from Hawaii island (I am on Oahu-Honolulu), who was eager to buy, it was just too complicated to figure out how to salvage knowing this was going into bankruptcy.
Around that time I also realized I need to optimize my business to stop wasting time on leads that go nowhere, of which there were alot!
This prop was on the Big Island, the cheapest island to buy in Hawaii right now, as valuations have tanked, Oahu (Honolulu) of course being the most expensive. Oahu's valuations have held up quite well. We were going after props w/FMV range of $400-600K for Oahu. This potential mortgage assignment deal was not our target farm area on Oahu, but went after it anyway thinking seller financing would still be an attractive option to prospective buyers. Believe this prop had been valued at about $250-75K.