Subject To opportunity...with possible entanglements

13 Replies

Evening, BP Fam!

I'm looking to buy a specific property using "subject to". if we get to a contract, we'll close it, get a warranty deed, a power of attorney from the seller to me for the property, and by snail mail will notify the seller's lender. so far so good? yes, no, maybe so? please advise.

NOW, here's the rub...the seller filed chapter 13 early in 2017 to save the house. in February of this year it was dismissed. On top of that, his most recent tenant abandoned the property about a month ago after having not paid rent for about four months (4-mos.). SO, add to this mix the potential for the house to fall into foreclosure. the seller is willing to let it go to FC; however, will consider my "subject to" deal.

The seller owes about $132k and the house county tax record appraisal is $159k, with comps in the area ranging between $150k and $175k. 

Q: is "subject to" reasonable since the property currently is not officially in foreclosure? what assurance should i ask/look for to make this deal possible/ reasonable? 

thanks in advance for your consideration and feedback!

@JJ Neerman how far behind in payments? What condition is the home in? Is he fronting any money? Will there be any ahead after being caught back up in payments and repairs and holding costs? If not, I'd negotiate for him to lessen some of that cost, even if it's with a promissory note. We have done over 30 subject to deals and sometimes you have to get creative.

Originally posted by @JJ Neerman :

Evening, BP Fam!

I'm looking to buy a specific property using "subject to". if we get to a contract, we'll close it, get a warranty deed, a power of attorney from the seller to me for the property, and by snail mail will notify the seller's lender. so far so good? yes, no, maybe so? please advise.

NOW, here's the rub...the seller filed chapter 13 early in 2017 to save the house. in February of this year it was dismissed. On top of that, his most recent tenant abandoned the property about a month ago after having not paid rent for about four months (4-mos.). SO, add to this mix the potential for the house to fall into foreclosure. the seller is willing to let it go to FC; however, will consider my "subject to" deal.

The seller owes about $132k and the house county tax record appraisal is $159k, with comps in the area ranging between $150k and $175k. 

Q: is "subject to" reasonable since the property currently is not officially in foreclosure? what assurance should i ask/look for to make this deal possible/ reasonable? 

thanks in advance for your consideration and feedback!

It might work but it will take someone with experience to pull it off. Just a question, why would you notify the lender? That will "blow up" the deal. You have no obligation to notify the lender.

Here is how Subject To is supposed to work:

How I buy houses for pennies on the dollar

https://www.biggerpockets.com/forums/311/topics/678938-how-i-buy-houses-for-pennies-on-the-dollar

@Asury Johnson - good questions...I’m walking through the house tomorrow to assess condition - last summer I saw him paint the exterior, install a new roof and AC, and made some interior improvements, too. Supposedly the next items for him were to be a new water heater in about a year or two, and some carpet...ill verify tomorrow.

So help me understand “spread,” and what I should anticipate?

And then with respect to the lender, is it a roll of the dice to notify them, or is it prudent to make the “subject to” deal solvent and viable?

@Account Closed Ok, ok , ok...very interesting! So it seems reasonable - provided our numbers work - to get his payments current, and then close the deal is that right? If so, then how long is reasonable to wait to refi a subject to deal; or is I ever necessary? Prudently I would think somewhere between 12 and 18 months to refi; thoughts?

@JJ Neerman I wouldn't refi if I didn't have to, unless you promised a time frame and it's in your contract. That's the beauty of subject to, you're leveraging someone else's money. If he made those big ticket improvements and only requires some cosmetic work, depending on how much he needs to be current, then it might be worth catching up the loan into if it leaves you a good amount of equity or can produce some great cash flow.

Originally posted by @JJ Neerman :

@Mike M. - great forum link, Mike...lots of meaty info.

 There is lots more info at my website which you can access through my profile. I wouldn't refi but I would run the numbers, figure out what I want to do with the property and move forward. Then when you have a few of these sending you cash flow, you can pretty much run your life freely without having to keep a boss happy.

@Account Closed - that’s the goal, brother! I’m a project manager for a global combustion and emissions controls company. I enjoy the work and my friends and colleagues; however though the salary is nice, I don’t believe it’s paying me the value for my execution expertise. As an example I’m managing multiple multi-million dollar deals at a single time, but yet am compensated at a single, flat rate. I get it; but I can use my same skill set building an investment portfolio and can be compensated directly in line with my execution efforts. Forgive the side trail, just eager to gain understanding in this arena so I can transition from employee to entrepreneur.

Originally posted by @JJ Neerman :

@Mike M. - that’s the goal, brother! I’m a project manager for a global combustion and emissions controls company. I enjoy the work and my friends and colleagues; however though the salary is nice, I don’t believe it’s paying me the value for my execution expertise. As an example I’m managing multiple multi-million dollar deals at a single time, but yet am compensated at a single, flat rate. I get it; but I can use my same skill set building an investment portfolio and can be compensated directly in line with my execution efforts. Forgive the side trail, just eager to gain understanding in this arena so I can transition from employee to entrepreneur.

 Sounds reasonable. I can help you with that. Send me a PM.

@JJ Neerman

I have a decent SFR portfolio, and 25 of them are subject to's. The main questions I would ask are:

What’s the interest rate?

Other loan terms? (Maturity date, fixed or variable, balloon, etc)

What are the payments?

What will you rent it for?

How much out of pocket will you be?

How much is it worth?

There’s no reason to notify the lender, and I don’t see a reason to refinance unless the interest rate was really high (in which case you should only buy it if you’re getting a good amount of equity).

Make sure your POA has specific language in it giving you the ability to cash and/or deposit checks, as you will likely get escrow refunds at some point (you'll also want to change the mailing address on the mortgage as soon as you can for this reason).

If you can provide answers to the above questions I’d be happy to give my input. Also I can give you some other details as you move forward if you want to PM me. Good luck!

@Justin Hammond all good and legit Qs; actually, I'm trying to pry this info from the seller. the little info he's provided so far is as follows with respect to your Qs:

IR: ?; fixed rate; 30-year; Payments: $1079 (P&I, Ins./Tx's.)

with respect to rent, they are going for similarly sized homes between $1200 and $1500...I think $1250 is reasonable for this one.

the Balance owed is about $132k, and the value is between $160k and $175k.

When I mentioned a POA, that was the first time i saw him pause...so, i need to tread lightly and bring him along on that with caution.

I should have read the end first; i would have PM'd you this info! haha...so i'll return your offer: feel free to PM with your feedback; i appreciate your input!