Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
If a homeowner finances you his property for 100k and you agree to pay him 100k but he owes 50k, and he has been paying for the property for 20 years, if you keep paying the mortgage payments and you agree to pay him 100k in 5 years.. who will get the principal reduction? The homeowner or me?
Real Estate Professional 路 West Palm Beach, FL 路 Member since 2012 路 23k+ posts 路 13k+ votes
7y
The owner does....you鈥檙e agreeing to pay him $100k in 5 years (sort of an odd set up)....it doesn鈥檛 matter what his loan balance is, he pays that off out your $100k, and the difference is his.
Rental Property Investor 路 Los Angeles, CA 路 Member since 2019 路 111 posts 路 38 votes
7y
@Fili Aguirre
That's a good question I would assume you do because if a bank finances you they don't get anything of your profit isn't he just taking the place as the bank that's a good question
Real Estate Professional 路 West Palm Beach, FL 路 Member since 2012 路 23k+ posts 路 13k+ votes
7y
The owner does....you鈥檙e agreeing to pay him $100k in 5 years (sort of an odd set up)....it doesn鈥檛 matter what his loan balance is, he pays that off out your $100k, and the difference is his.
Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
7y
@Wayne Brooks ooh, I think I understand, but, what if you agree to pay the homeowner 50k in X years and he owes 50k, you'd be getting the principal reduction becauae you only agreed to give him 50k correct?
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
You can't both own the property. So apparently you're talking about doing a land contract (contract for deed)? No matter what you pay the property owner, he'll have to pay it off before he can deed it over to you.
Realtor 路 Southeast Michigan 路 Member since 2017 路 232 posts 路 180 votes
7y
Fili , doing it your way is risky. What happens if the home owner collects your monthly payments, but doesnt pay off his loan? You lose the property, and have little recourse.
Its best to do these LCs on properties that are owned free and clear, as it reduces your risk.
Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
7y
@DJ M. I will make the payments directly to the homeowner's mortgage or I will use an escrow company to make the payments if the homeowner doesn't trust me
Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
7y
@John Teachout he can get a 50k lien in my the property so if i dont pay he can take the property back no? Also, he doesnt have to pay it off in order to give the deed, i dont know i might be wrong
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
If the owner doesn't own the property free and clear, it's encumbered and he can't transfer something he doesn't technically own. ie, the original lender owns an interest in it.
What are you trying to do here? Buy a property by taking over the payments? If the seller tries to "sell" the property to you, it will likely trigger a "due on sale" event with the loan so he would be required to pay it off.
Be careful in these kind of deals as you can wind up with:
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
Originally posted by @Account Closed:
@John Teachout do you just fix and flip? Or do you do wholesaling, seller financing, subject tos, etc?
We are buy/hold investors. We don't do flips. We also do some seller financing on property sold to tenants. (not rent to own, outright sale with us holding the mortgage)
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
Originally posted by @Account Closed:
@John Teachout you know you can do that with properties with mortgages, correct?
We don't have any properties with mortgages. But when you go to a closing and the buyer gets a deed in their name, any previous loans, liens, etc need to be paid off at the close. So I'm not clear how it could be done with a property that has a mortgage on it?
Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
7y
@John Teachout oh well, investors do that and they dont pay off the loan they just pay the homeowner's back payments if the homeowner is in pre-foreclosure and the investor gets the property's deed. maybe its different in your state馃
Specialist 路 Paradise Valley, AZ 路 Member since 2018 路 3k+ posts 路 2k+ votes
7y
Originally posted by @Account Closed:
If a homeowner finances you his property for 100k and you agree to pay him 100k but he owes 50k, and he has been paying for the property for 20 years, if you keep paying the mortgage payments and you agree to pay him 100k in 5 years.. who will get the principal reduction? The homeowner or me?
On Subject To? Wrap? Lease Option? Land Contract? Contract for Deed? Mirror Wrap?
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
Originally posted by @Account Closed:
Originally posted by @Account Closed:
If a homeowner finances you his property for 100k and you agree to pay him 100k but he owes 50k, and he has been paying for the property for 20 years, if you keep paying the mortgage payments and you agree to pay him 100k in 5 years.. who will get the principal reduction? The homeowner or me?
On Subject To? Wrap? Lease Option? Land Contract? Contract for Deed? Mirror Wrap?
It depends.
Insufficient information to answer correctly.
I think these are the types of situations Fili is referring to. I don't know of any actual sale where the deed changes hands that can have previous loans still encumbering it.
If a homeowner finances you his property for 100k and you agree to pay him 100k but he owes 50k, and he has been paying for the property for 20 years, if you keep paying the mortgage payments and you agree to pay him 100k in 5 years.. who will get the principal reduction? The homeowner or me?
On Subject To? Wrap? Lease Option? Land Contract? Contract for Deed? Mirror Wrap?
It depends.
Insufficient information to answer correctly.
I think these are the types of situations Fili is referring to. I don't know of any actual sale where the deed changes hands that can have previous loans still encumbering it.
@John Teachout - in all of Subject To, Wrap, Land Contract, Contract for Deed and Mirror Wrap, the Deed changes hands while the previous financing is still in place. The buyer does not need to qualify for financing with the existing lender. In a Lease Option the loan is still in place but the Deed doesn't convey (change hands) until the Option is exercised. The differences are in how foreclosure happens in the event of non-payment and the underlying mortgagor has the option to exercise the Due on Sale Clause.
Escrow Officer 路 Temecula, Ca. 路 Member since 2016 路 418 posts 路 152 votes
7y
I would specify in writing how the principal reduction is handled and applied. In an AITD situation, funds go to the existing/underlying loan AND the seller for the equity payment. So, I would be of the position that payments are allocated in a way that pays down the principal of both parties, the actual loan and the seller equity payment at the same time.
For example, the existing mortgage payment is $1,000 a month and you are paying $1,500 a month, which means the seller gets a $500 monthly equity payment. You decide/agree to pay $2,500 a month, which is $1,000 over what is minimally "required". I would indicate in writing that $750 (of the additional payment) goes to the underlying loan and $250 goes towards the seller's equity payment. This way you are paying both down and truly maximizing the principal reduction payments. Only paying the seller will leave the underlying loan in the same place and only paying the loan leaves the seller "loan" in the same place.
Also, if you send the underlying loan any additional funds, they almost always apply it towards interest first instead of principal. So, if you are ever sending in extra funds, it HAS to be specifically noted that the money has to be applied as a principal reduction or they will not do that and that doesn't help you at all.
Escrow Officer 路 Temecula, Ca. 路 Member since 2016 路 418 posts 路 152 votes
7y
@John Teachout you do NOT have to pay off the loans to get title insurance. If you want "clear title" then you would but I do Sub2 and AITDs often enough to know that they are easily possible if all parties agree.
There is a deed recorded and the buyer does become the title holder in these transactions, too. The largest issue is the seller using the money to pay the existing mortgage (which is why I suggest using a loan servicer to ensure this is done) and the possibility of the existing lender finding out about the transfer and calling the loan due under the Due on Sale Clause. 99.9% of the time the lender doesn't call the loan due because they don't care as long as the mortgage gets paid on time and no issues arise.
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
So if the deed has transferred from the seller to me, the buyer. If the seller stops paying the mortgage, how does the original lender foreclose? Do they foreclose against me as the new owner? If they can do that, then I didn't really own the property, eh?
Rental Property Investor 路 Yuma, AZ 路 Member since 2019 路 637 posts 路 46 votes
7y
@John Teachout theyll foreclosure against the seller. But, it wont happen because youll make the payments directly to the bank. You wont give the money to the seller and hope he pays his mortgage payments
Rental Property Investor 路 Concord, GA 路 Member since 2015 路 3k+ posts 路 3k+ votes
7y
Wow, I'm really having a hard time wrapping my head around this. If they foreclose against the seller, what good will that do as the seller no longer owns the property? And how did the lender legally lose their collateral on their previously secured loan?