Subject-to Deals for Pre-Foreclosues in California: Experiences

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Subject-to Deals for Pre-Foreclosues in California: Experiences

Matthew Nelson
Member since 2019 · 14 posts · 3 votes

I am currently researching the process of doing subject-to deals for homes that are owned by distressed sellers, particularly those that have missed two or more payments or have entered pre-foreclosure proceedings with their lenders.

I have been researching for a while and have found people have had mixed experiences with lenders calling loans thanks to the due-on-sale clause. Some say the banks are happy as long as they are getting paid, some say the banks will call the loan if they don't get paid within a year, some say its entirely based on the reputation of the lender, and some say the banks always call it.

If you have experience related to subject-to deals, preferably in California, can you touch on these questions:

1.) Which lenders are known for immediately calling loans upon the transfer of the title?

2.) What is your experience with having loans called?

3.) What are some ways to bypass the due-on-sale clause?

4.) If a loan is called, what options does an investor have?

Any advice is helpful. Thank you.

Some assumptions: The loan would be brought current upon sale

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Ron S.
Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
7y
1) There is no such list. Most, if not all lenders will eventually accelerate the note. Most if not all, have regulators, examiners and investors that will require them to mitigate risk of loss by calling the note due to an illegal transfer. 2) I call loans every time I catch someone transferring out of their name. I catch them in a myriad of ways. I give them 30 days to cure or I start foreclosure and I don't have the 120 day rule when the property is transferred. I can start in as little as 30 days from the date of my demand letter. 3) Other than don't get caught? Keep the seller on title. 4) Pay it off with cash, financing, or sell it before the lender forecloses. Subject to, AITD, Wraps, etc. are just fancy terms for illegal transfer of ownership to a non obligor. I get why people like to do it. In some "perfect storm" scenarios, people can take advantage of a below market fixed rate the borrower has, that is not available today or, No credit hit, no cash out of pocket, no liability on the note, etc. but unless you have an exit strategy if the loan is called, its risky. You compound the risk doing it with a borrower in pre foreclosure. You create a paper trail for the state to come after you for acting in the capacity of a licensed foreclosure prevention consultant without that requisite license (Assuming you don't have one and aren't exempt from having one).
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  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    7y
    1) There is no such list. Most, if not all lenders will eventually accelerate the note. Most if not all, have regulators, examiners and investors that will require them to mitigate risk of loss by calling the note due to an illegal transfer. 2) I call loans every time I catch someone transferring out of their name. I catch them in a myriad of ways. I give them 30 days to cure or I start foreclosure and I don't have the 120 day rule when the property is transferred. I can start in as little as 30 days from the date of my demand letter. 3) Other than don't get caught? Keep the seller on title. 4) Pay it off with cash, financing, or sell it before the lender forecloses. Subject to, AITD, Wraps, etc. are just fancy terms for illegal transfer of ownership to a non obligor. I get why people like to do it. In some "perfect storm" scenarios, people can take advantage of a below market fixed rate the borrower has, that is not available today or, No credit hit, no cash out of pocket, no liability on the note, etc. but unless you have an exit strategy if the loan is called, its risky. You compound the risk doing it with a borrower in pre foreclosure. You create a paper trail for the state to come after you for acting in the capacity of a licensed foreclosure prevention consultant without that requisite license (Assuming you don't have one and aren't exempt from having one).
    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Ron S.  also there are some pretty strong laws on the books in CA OR and WA about this type of predatory transaction I would for sure consult with an attorney and get to know the statutues regarding foreclosure rescue before going into this thinking there are no laws its heavy fines . and criminal if you do to much of it.

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  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    7y
    Originally posted by @Jay Hinrichs:

    @Ron S.  also there are some pretty strong laws on the books in CA OR and WA about this type of predatory transaction I would for sure consult with an attorney and get to know the statutues regarding foreclosure rescue before going into this thinking there are no laws its heavy fines . and criminal if you do to much of it.


    Agreed! I tried to "vote" but my button/link seems to be broken.
    0Reply
  • Matthew Nelson
    OP
    Member since 2019 · 14 posts · 3 votes
    7y

    @Ron S.  Thanks for the input. I appreciate hearing from somebody who is clearly involved in the lending space. Do you mind sharing some more detailed reasoning behind why banks would be inclined to immediately call loans? Is it part of some due diligence process upon the sale of the loan to another institution? I know you mentioned its a risk for the investors, but if the payments are brought current and are being made on time, at least in the short term, why would a bank be so determined to call a loan since it seems to me that the loan was "saved"? Agreements with investors? Note: I understand entirely why this would not be acceptable in the long-run.

    @Jay Hinrichs I will make sure to consult with an attorney and read up on all laws related to "foreclosure rescue" in California. I am currently only in the stage of researching different seller financing techniques available to me, and I appreciate your helpful input.

    A note: I'm researching seller financing techniques for fix-and-flips only and not long-term rentals.

    0Reply
  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    7y
    Originally posted by @Matthew Nelson:

    @Ron S.  Thanks for the input. I appreciate hearing from somebody who is clearly involved in the lending space. Do you mind sharing some more detailed reasoning behind why banks would be inclined to immediately call loans? Is it part of some due diligence process upon the sale of the loan to another institution? I know you mentioned its a risk for the investors, but if the payments are brought current and are being made on time, at least in the short term, why would a bank be so determined to call a loan since it seems to me that the loan was "saved"? Agreements with investors? Note: I understand entirely why this would not be acceptable in the long-run.

    @Jay Hinrichs I will make sure to consult with an attorney and read up on all laws related to "foreclosure rescue" in California. I am currently only in the stage of researching different seller financing techniques available to me, and I appreciate your helpful input.

    A note: I'm researching seller financing techniques for fix-and-flips only and not long-term rentals.


    Just making a payment doesn't "save" a loan. Banks/financial institutions/servicers have regulatory bodies that hold them accountable for the proper and appropriate servicing characteristics of their portfolio. What if a bank historically ok's white anglo saxon protestants taking over loans subject to but any time a borrower with a Hispanic surname comes up, they accelerate? That will put them on the news quickly. What if the borrower moves out of state and lets a guy take over his loan and the guy decides to turn the house into a grow facility? In both scenarios, payments are being made. In both scenarios there is increased risk. What if the payments go up and the new owner only knows of the old payment amount? He can't call the lender to get the new payment amount. The lender wouldn't tell him if he did call and what if the old owner gave permission? (That scenario is pretty common and is one way we catch a lot of subject to).What if the new owner decides he wants a bigger deductible on his insurance than the lender's requirements are? What if the new owner decides for whatever reason that he will only pay his property taxes just before the 5 year default? In both scenarios the payments are being made but in all the scenarios, the security used to issue the loan is at risk and more than likely in violation of the terms of investor guidelines, policy and procedure of the institution and other measurements.
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  • Brett Goldsmith
    Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
    7y

    If you do it enough a note likely will be called due. Will vary on probability based on size of investor, servicer,  or insurer on the note. You need to have in any subject-to contracts contingencies to cure if note is called due or if mortgage payments are missed. Any transactions such as this need to be handled with extreme sensitivity and you need a strong contract and proper disclosures that protects all parties. It should not be attempted without the proper experience and legal counsel. 

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