Reinstating loan, out my name on grant deed

6 Replies

Sorry typo can’t edit, should say ‘put name on grant deed’

Working with a Realtor specializing in Preforeclosures (she does all the door knocking, phoning, negotiating).

Going to see a house today. Owner has 3 days left to reinstate his loan. Realtor says I can pay the $30,000 to reinstate & transfer house over to me in the Grant Deed.

Then we pay his mortgage payments until we sell the house... is this even legal? Or do we get a new loan and pay off his one? currently applying for non Qualifying loans. (Self employed general contractor, income low on tax returns, but own house worth $1.2 million, no debt)

Would love other opinions on this, not just our realtor’s. Goal is to flip houses to build up larger cash deposits each time. The market here is crazy, homes sell fast, but getting good deal is tough.(Central coastal CA)

Thanks.

Not a bad plan,  its legal, but the note (current loan) may have a due on sales clause.  

But my biggest concerns are:

  1. Will the current legal owner sign a grant deed to you? Before you shell out the moo-la?
  2. Are there any other liens on the property?
  3. Are there any IRS tax liens on the current owner?
  4. Who is going to pay this nice agent(broker) their commission?
  5. You are going to have to march down to the trustee and make the payment physically to them..will the do it? Legally they should, but some trustees will not work if it is that close to foreclosure.
  6. Is there a title report available?  Get one...
  7. Do you have cash to start making the payments.
  8. Make sure that all recorded owners are willing to sing the grand deed. Ex wife may refuse....

Even though you make the loan current and you now own the property, the seller is still on hook for the loan........

.

Originally posted by @Sarah Jukes :

Sorry typo can’t edit, should say ‘put name on grant deed’

Working with a Realtor specializing in Preforeclosures (she does all the door knocking, phoning, negotiating).

Going to see a house today. Owner has 3 days left to reinstate his loan. Realtor says I can pay the $30,000 to reinstate & transfer house over to me in the Grant Deed.

Then we pay his mortgage payments until we sell the house... is this even legal? Or do we get a new loan and pay off his one? currently applying for non Qualifying loans. (Self employed general contractor, income low on tax returns, but own house worth $1.2 million, no debt)

Would love other opinions on this, not just our realtor’s. Goal is to flip houses to build up larger cash deposits each time. The market here is crazy, homes sell fast, but getting good deal is tough.(Central coastal CA)

Thanks.

Doing what your realtor suggests is essentially doing a "subject to" deal. It is legal but is most likely a violation of the "due on sale" clause of the borrower's note. If the borrower reinstates the loan and you take it over, you are at risk of foreclosure because of your transfer. This is a risky strategy and you really need to know what you're doing. To me, "subject to" deals are relatively low risk when there's no impending FC sale and if you're flipping since you'll be in and out of the property before most banks will know what happened. For rentals, you need to have profitable exit strategies in case your loan gets called due.

Keep in mind that it's the borrower that has the right and ability to reinstate, not you. You would have to give the $30k to the borrower. How does your realtor suggest that you secure it? 

In CA, the borrower has 5 days to reinstate before the sale so does that mean there are 8 days before the sale?

Originally posted by @John Lambert :

I'm just curious, has anyone here ever purchased a property Subject To where the loan has been called due as a result?

I've called notes where the borrower has done a subject to. They often tell me I can't do that because their agent told them a subject to was fine or, their attorney told them a subject to was fine or their neighbor, barista, etc., all told them it was fine. Then they get my NOD in the mail and the light goes on that it's not fine.

Some lenders don't enforce it and, some lenders do. Some people get away with cheating on their taxes too but that doesn't mean we should.

Subject to is fine if you have an exit strategy and, can get out of it before the lender calls the note, just in case.

@John Lambert I've only heard from a few investors of having loans called due and according to them it is very rare. Even when they are called due, the lender still has to foreclose and that's even more rare when you're talking about big banks. 

I bought a couple of properties via HOA lien foreclosure and started paying the 1st mortgages on both. I flipped the first and kept the 2nd as a rental. When I tried to get the bank to let us pay for and get insurance on the property, they sent me an acceleration letter. That was it, they never took any further action. We sold that property since we couldn't get insurance for it.

As @Ron S. mentioned, if you happen to have a note investor as a lender, it's not so rare to have the loan called due in a sub2. From a lender's perspective (especially a note investor), a sub2 transaction lowers the value of your note because it is a defect. Remember, the loan is a contract between the borrower and the lender. A lender has no contract with a sub2 buyer. If I were to buy a loan with a sub2 defect at a discount, the 1st thing I'd do would be to send an acceleration letter followed by FC. I'd prefer a full payoff but would take it all the way to sale if necessary.

Ron S and Andy M thank you for your comments. I understand what you are saying. A nationwide guru teaching this approach across the country would have everyone believe that there is no problem with it. For him maybe there isn't, but then again he is most likely making his fortune selling coaching and courses.