Wholesaler · Palmdale, CA · Member since 2014 · 5 posts · 4 votes
Hello all,
I have a question regarding a subject to.
If one were to acquire the title of a house on a sub2 and the property had substantial equity, of course it would make sense to flip; however, i am looking to hold this property. the question is: How do u take care of the mortgage that is in the sellers name? what i mean by this is, if u are already making the the payments on the sellers mortgage and you are the title owner, but you want to remove them from the mortgage (so their credit won't be affected), do u take out a New mortgage on the property under your name and pay the first mortgage with it??
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
12y
If you refinance the property, escrow will send a request for demand to the current lender. That lender responds with the payoff amount which will be good through a certain date. Your new loan funds, the old loan gets paid off and reconveyed, a new deed of trust is recorded against the property in first position. Now you have signed up for a long term liability and since it is a refinance, not a purchase money loan, you could be held personally liable for any default. Which means, yes, they can sue you in court after the foreclosure and come after you forcing you into bankruptcy.
So, a question I have is, why would you EVER want to pay off a sub2 loan with a loan in your own name? If it is a balloon or adjustable I understand, but if it is a fully amortized loan with a low interest rate, there is very little risk. Don't let the imagined fear in your mind cause you to make an irrational decision.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
12y
If you refinance the property, escrow will send a request for demand to the current lender. That lender responds with the payoff amount which will be good through a certain date. Your new loan funds, the old loan gets paid off and reconveyed, a new deed of trust is recorded against the property in first position. Now you have signed up for a long term liability and since it is a refinance, not a purchase money loan, you could be held personally liable for any default. Which means, yes, they can sue you in court after the foreclosure and come after you forcing you into bankruptcy.
So, a question I have is, why would you EVER want to pay off a sub2 loan with a loan in your own name? If it is a balloon or adjustable I understand, but if it is a fully amortized loan with a low interest rate, there is very little risk. Don't let the imagined fear in your mind cause you to make an irrational decision.
Wholesaler · Palmdale, CA · Member since 2014 · 5 posts · 4 votes
12y
Hey Aaron, thanks for the reply.
In response to your question, the reason is that i would like to do a cash out refinance so i can use that money to fund another investment; furthermore, i'm certain i can get a lower interest rate than that of the current mortgage.
Also, thanks for pointing out that it would Not be a purchase money loan. i completely overlooked that.
i would still consider it.
but,
What other ways are there to tap into the equity of a sub2 property???
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Just to clarify a point, in your case you mentioned sufficient equity, in other cases it can be slim just to refi. If the purchase was within a year you could still have difficulty in a cash out refi. And, within a year your loan may be underwritten as a purchase but it is closed as a refi and as Arron mentioned you won't have the non-recourse nature of a purchase money loan. After seasoning required your loan will be a straight refi. This is because a Sub-2 is an installment type transaction with the assumption of the liability of the existing mortgage even with title being transferred subject to the debt. Some miss the point that a seller has recourse against a buyer in a Sub-2 and can take you to a judicial foreclosure or suit for possession if you breach the terms of the contract. Banks on a commercial loan will have different guidelines to underwrite and close as opposed to secondary market requirements, so the type of loan will make a difference. :)
Investor · Salt Lake City, UT · Member since 2016 · 60 posts · 10 votes
10y
Follow up:
I saw your post about buying a property sub2. I wondered how that turned out? Anything come up that you weren't expecting?
I've got a property that I am going to approach the owner on doing that and have wondered how financing works after the sub2 agreement balloons. Your post gave me some much needed info. Thanks for posing this question!
Appraiser · Austin, TX · Member since 2014 · 162 posts · 19 votes
10y
Same here. Looking for some updated insight on the process.
I have a house that I own sub 2. With a 6% loan (still cashflows) that I would like to refi into lower rate.
My questions are about the seasoning period mentioned earlier @Bill Gulley How does a seasoning period affect a sub 2 purchase refi different from a regular purchase refi I have seen people refinancing their property a couple of times year. Also the note has not changed hands in several years.
So basically I would just need to approach the NEW lender, find out what they can offer and start the process?
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
I don't know why I'm being tagged. I made my point quite clear early that I wouldn't refinance a house with a sub2 mortgage, even if a lower rate is available. I can always go buy another use and use that lower rate loan on that property and I'm not a cash-out refinance investor. My goal is free & clear properties. I don't take a 2nd bite out of the apple.
New York, NY · Member since 2020 · 54 posts · 14 votes
6y
How did this work out for you? I’m looking to approach a seller with owner financing then refi a little after this covid thing dies down because my wife is on furlough so financing is hard to find in NY. But this is for a home I plan on occupying
Investor · San Antonio, TX · Member since 2016 · 242 posts · 126 votes
6y
I'm not sure if someone already mentioned this but make sure to get a Power of Attorney when you close on the Sub2 side. You can make it a limited POA to only the mortgage and that particular house. It just makes things easier when you go to refinance. You can now show you have the legal right to discuss this mortgage and property.
I'm not sure if someone already mentioned this but make sure to get a Power of Attorney when you close on the Sub2 side. You can make it a limited POA to only the mortgage and that particular house. It just makes things easier when you go to refinance. You can now show you have the legal right to discuss this mortgage and property.
Thanks that’s useful info is there anything else that should be in the deal? Like the amount of Years before a refinance etc..
New York, NY · Member since 2020 · 54 posts · 14 votes
6y
@Aaron Mazzrillo
The seller is in his 70s so I would like to do that because I don’t know how long he’ll be around. Plus the only reason I want to avoid the bank is timing right now. I rather the property be in my name so there’s no issues with insurance taxes etc..
How did this work out for you? I’m looking to approach a seller with owner financing then refi a little after this covid thing dies down because my wife is on furlough so financing is hard to find in NY. But this is for a home I plan on occupying
Owner financing and Subject To are two different techniques. Both are powerful, but they are quite different. You still probably will be required to have seasoning before refinancing. Underwriting rules have changed with "this covid thing" It may be a while before lending settles into a more stable and predictable pattern.
I’m cool with waiting a year or more. It leaves my credit open to do other deals in the near future.
Since the seller is in his 70's, his heirs simply inherit the note if he should pass. Depending on how the heirs treat the note and the underlying loan, it could create a problem, but it Doesn't Have to create problem, when it goes through probate. There is a Due on Sale clause in the underlying note and there is a special way to handle the transition. At any rate, you should be prepared to have to refinance on short notice (30 to 60 days) if everything should fall apart.
New York, NY · Member since 2020 · 54 posts · 14 votes
6y
@Andrew Syrios
I’m trying to make sure it’s possible. Back in the early 2000s we used to be able to refi as long as we were on the deed. So is it the same way with a subject to property?
The seller is in his 70s so I would like to do that because I don’t know how long he’ll be around. Plus the only reason I want to avoid the bank is timing right now. I rather the property be in my name so there’s no issues with insurance taxes etc..
I have a sub2 deal and the lady has been dead like 4 years. When you buy sub2, you transfer title (that's the buying part) into your name (or entity), but the loan stays in his/her name. As long as you do all the paperwork correctly, you shouldn't have an issue with getting the loan called. Hasn't happened to me and I've done a bunch of them here in SoCal.
New York, NY · Member since 2020 · 54 posts · 14 votes
6y
@Aaron Mazzrillo
How does that work out for your personal taxes because if I do it this will be the property I’ll occupy so there’s no money to be made off this property.
Investor · San Antonio, TX · Member since 2016 · 242 posts · 126 votes
6y
I've never had any problem with the amount of time I hold a sub2. But personally I try and get it in my name as soons as it makes sense. You've got the Sword of Damocles hanging over your head with the "Due on Sale Clause" or "Acceleration Clause" should it ever arise.
How does that work out for your personal taxes because if I do it this will be the property I’ll occupy so there’s no money to be made off this property.
The 1098 comes out in the seller's name, but you still claim it because you're the one paying it. It is only potentially a problem if he still claims it, but even then highly unlikely. If you do the paperwork correctly, he'll never get the 1098 mailed to him so you won't have to worry about it. Lastly, if you don't have the money to pay off the loan or are in a market that is too slow to be able to sell the house in time, in case the DOS is exercised, it is unwise to even do the deal.
I’m trying to make sure it’s possible. Back in the early 2000s we used to be able to refi as long as we were on the deed. So is it the same way with a subject to property?
Yes, I'm no lawyer of course, but from what I know and all my experience, if you are on the deed you can refinance.