Seller in a Subject-To offer
Member since 2023 · 3 posts · 1 vote
I received a subject-to offer which I understand the premise. What additional protections should a seller ask for in the subject-to contract? Also interested in using a real estate lawyer with understanding of creative financing (any recs?) for Orlando to help draft the agreement
@John Liang Real estate that's priced correctly normally sells in arms length transaction. When you say the terms "meet the price goals" that screams you have unrealistic expectations of what your property is worth. I hate the risk exposure of subject 2 on the property seller in the first place but do you know what I hate even more? The risk exposure when the buyer in a Sub2 overpays. How are they exiting the loan you are still guaranteeing? What motivates them to keep the loan you are guaranteeing in good standing?
There’s nothing wrong with a real estate transaction that underperforms. In fact there’s normal. Don’t use Sub 2 believing you’re going to turn around the fortunes of the property. Sell arms length, learn from experience owning property that didn’t meet your expectations and move on.
why do you want to sell in this manner?
Market value or more, 25% down or more, 7% interest or more, 5 year balloon. Keep enough spare cash laying around to pay the loan off if your lender finds out. (I assume you plan to “forget” to tell them.) Unless you don’t care about your credit being trashed if it happens. Have a plan for making the payments if they stop, again unless you don’t care about your credit. Never use their contract. Your local title company should have a standard contract if you’re in a title state. Otherwise as you suggested, a good real estate attorney. (But they aren’t needed if you’re in a title company state.)
same reason why most sellers entertain subject to offers because it meets the price goals. I do acknowledge there are inherent risks and would prefer a conventional buyer. I hear about creative financing a lot from buyer's perspective and pace morby but curious to know what recommendations (if any) exist for sellers
You will find that the risk premium being offered never matches the risk being taken by you. Have a financial advisor run the numbers and credit reports first.
Personally, I would never do it.
Finally, you will have people tell you to not record the new deed, the new mortgage that you have, and not inform your current bank of the sale. Do not listen to those people.
Are you facing immediate foreclosure if you don't take the sub2 offer or something? I don't understand why anyone would consider giving a buyer the deed while keeping the mortgage in their name unless they were extremely desperate. To me it is almost the same thing as co-signing on a mortgage with a complete stranger who can't qualify for a mortgage on their own. Most people would never do that, but somehow they will consider sub2 which is even worse... once you sell sub2, your credit is at risk, your DTI is affected negatively, there's a risk of the due on sale clause being triggered creating a bad situation for all, as well as potential insurance coverage/ liability/ fraud issues if there's ever a claim at the property and insurance isn't set up properly or hasn't been paid etc., and the buyer has total control. I would look into seller financing or basically any other deal structure over sub2 personally. I hear a lot of investors say they will buy using sub2 but never sell that way, and there's a good reason for that.
Are you facing immediate foreclosure if you don't take the sub2 offer or something? I don't understand why anyone would consider giving a buyer the deed while keeping the mortgage in their name unless they were extremely desperate. To me it is almost the same thing as co-signing on a mortgage with a complete stranger who can't qualify for a mortgage on their own. Most people would never do that, but somehow they will consider sub2 which is even worse... once you sell sub2, your credit is at risk, your DTI is affected negatively, there's a risk of the due on sale clause being triggered creating a bad situation for all, as well as potential insurance coverage/ liability/ fraud issues if there's ever a claim at the property and insurance isn't set up properly or hasn't been paid etc., and the buyer has total control. I would look into seller financing or basically any other deal structure over sub2 personally. I hear a lot of investors say they will buy using sub2 but never sell that way, and there's a good reason for that.
I agree with @Steve K.: Don't do a Subject To as a seller. The advantage is to the buyer. Your question: "What additional protections should a seller ask for in the subject-to contract?" There are none.
Do a Wrap instead. You can thank us later. If you want details, ask away.
Are you facing immediate foreclosure if you don't take the sub2 offer or something? I don't understand why anyone would consider giving a buyer the deed while keeping the mortgage in their name unless they were extremely desperate. To me it is almost the same thing as co-signing on a mortgage with a complete stranger who can't qualify for a mortgage on their own. Most people would never do that, but somehow they will consider sub2 which is even worse... once you sell sub2, your credit is at risk, your DTI is affected negatively, there's a risk of the due on sale clause being triggered creating a bad situation for all, as well as potential insurance coverage/ liability/ fraud issues if there's ever a claim at the property and insurance isn't set up properly or hasn't been paid etc., and the buyer has total control. I would look into seller financing or basically any other deal structure over sub2 personally. I hear a lot of investors say they will buy using sub2 but never sell that way, and there's a good reason for that.
I agree with @Steve K.: Don't do a Subject To as a seller. The advantage is to the buyer. Your question: "What additional protections should a seller ask for in the subject-to contract?" There are none.
Do a Wrap instead. You can thank us later. If you want details, ask away.
What is a wrap? I keep hearing about this.
Are you facing immediate foreclosure if you don't take the sub2 offer or something? I don't understand why anyone would consider giving a buyer the deed while keeping the mortgage in their name unless they were extremely desperate. To me it is almost the same thing as co-signing on a mortgage with a complete stranger who can't qualify for a mortgage on their own. Most people would never do that, but somehow they will consider sub2 which is even worse... once you sell sub2, your credit is at risk, your DTI is affected negatively, there's a risk of the due on sale clause being triggered creating a bad situation for all, as well as potential insurance coverage/ liability/ fraud issues if there's ever a claim at the property and insurance isn't set up properly or hasn't been paid etc., and the buyer has total control. I would look into seller financing or basically any other deal structure over sub2 personally. I hear a lot of investors say they will buy using sub2 but never sell that way, and there's a good reason for that.
I agree with @Steve K.: Don't do a Subject To as a seller. The advantage is to the buyer. Your question: "What additional protections should a seller ask for in the subject-to contract?" There are none.
Do a Wrap instead. You can thank us later. If you want details, ask away.
What is a wrap? I keep hearing about this.
@John Liang Real estate that's priced correctly normally sells in arms length transaction. When you say the terms "meet the price goals" that screams you have unrealistic expectations of what your property is worth. I hate the risk exposure of subject 2 on the property seller in the first place but do you know what I hate even more? The risk exposure when the buyer in a Sub2 overpays. How are they exiting the loan you are still guaranteeing? What motivates them to keep the loan you are guaranteeing in good standing?
There’s nothing wrong with a real estate transaction that underperforms. In fact there’s normal. Don’t use Sub 2 believing you’re going to turn around the fortunes of the property. Sell arms length, learn from experience owning property that didn’t meet your expectations and move on.