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Henry Der
  • Real Estate Investor
  • Burnaby, British Columbia
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Sub2 deal on large complex as foreign investor/buyer

Henry Der
  • Real Estate Investor
  • Burnaby, British Columbia
Posted May 25 2022, 21:12

Looking at purchasing a large apartment complex using sub2.

Owners willing to do a sub2 for capital injection to help turn the operations around.  Owner will stay on mortgage, but will be off title and off deed as part of the agreement, as I will assume ownership of the property.  Several years left on the mortgage term.

Structure: One LLC on deed (I will purchase) owns a different LLC on title. Mortgage is against the LLC on title. Possible that one present owner may stay in as a minor shareholder. Have several questions:

Lender Concern/Actions:

1. Would lenders typically allow this type of deal to occur where existing owners/mortgage holders are no longer on title nor on deed?

2. If I do get ownership transfer, would/could the lender call the loan (typical due on sale clause) - are there any sub2 rules to prevent this?  (Title remains unchanged, but the deed transfers)

3. I am a Canadian without a US credit score. Lender will not likely allow me to assume or renew the mortgage. Could the existing borrowers continue renewing in their names? 

4. What are the potential problems with this scenario?

My maximum risk:

5. Would the sub2 borrowers (existing partners) be on the hook and me zero liability on the loan?

6. Then my maximum risk should there be problems, just be my cash injections that I do as part of the purchase?

Thanks very much in advance.

Dayton, Ohio

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