Subject to Problems in 2018?

7 Replies

What's the situation with "due on sale" clauses being enforced in 2018, particularly in Arizona and California?  I read some old posts that said Wells Fargo had come after them, and I was told to stay away from FHAs.

Thanks.

Originally posted by @Wendy Black :

What's the situation with "due on sale" clauses being enforced in 2018, particularly in Arizona and California?  I read some old posts that said Wells Fargo had come after them, and I was told to stay away from FHAs.

Thanks.

Subject To is doing fine. There is a problem with Title companies insuring FHA Subject To, but other than that nothing new. Why do you ask?

I've considered it for quite awhile.  I find it intriguing, but morally questionable.  On one hand, as long as the financial institution gets its money, they shouldn't have a problem with it.  On the other, it is a loan made to a certain person.

Originally posted by @Wendy Black :

I've considered it for quite awhile.  I find it intriguing, but morally questionable.  On one hand, as long as the financial institution gets its money, they shouldn't have a problem with it.  On the other, it is a loan made to a certain person.

 You would not succeed doing Subject To. You misunderstand the benefits to the seller and the bank. Correct, the bank gets paid. If the seller defaults, the bank doesn't get paid. Subject To means you are making the payment for the seller. Even so, the seller is still responsible for the loan. That does not change. A Subject To does not remove the seller from the loan. There is a guy in town by the name of Burley who is very good at teaching Subject To. Perhaps one of his seminars would better explain the process to you. Or, you could do 2nd position notes instead.

The alienation clause that is in most mortgages and trust deeds is what your referring to when you say due on sale.

now this clause gives the Lender the right to call all sums due and payable on the alienation of title.. but its a right and its at the lenders discretion.. other wise you would have every sub too being called right about now.. its not hard to figure out that these have happened any deeding of the property to any entity is an alienation.. some try to hide them with land trusts but banks are wise to those.. the ones that usually work is family trusts for estate planning.. or in some cases from you personally to your single member LLC.. but to sell to a 3rd party in any manner that's alienation of title.

Now I personally NEVER went through title when I bought sub too always bought them without title insurance and on my own.. no need to pay for either..  If for some reason a sub too blew up and lost 20k so what.. 

In a stable or decreasing interest rate environment, lenders have less incentive to call loans. With interest rates on the rise, lenders may start paying more attention to due on sale clauses. Back in the late 70s when interest rates were on the increase, due on sale enforcement was a huge issue with lenders

I am wondering the same thing. I would like to try out one of these subject to type purchases. The seller I'm dealing with has two loans with Wells Fargo, the first at just about $100,000 at about 4% and the second of about $28,000 at 3%. She will sell to me for about 40% below market. I would like to take over her payments temporarily while cleaning it up and then sell it with an agent on the MLS. Since we're coming up on summer, I think I could sell it and make a nice profit within 6 months. If Wells Fargo were to call the loan, how much time would we have to sell it?

@Matt Rathburn

I’m not entirely sure on the timeline as I have heard different things. My guess is they would have to actually foreclose which is different by state.

But if you are getting it at 60% of value, who cares? Worst case scenario you should be able to get a hard money lender or partner to cash out the deal for you if it’s that good. And even if you couldn’t find a lender or partner, if it’s 60% of value you could still wholesale it to a cash buyer for a nice profit.

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