Investor · Colorado Springs , CO · Member since 2013 · 77 posts · 22 votes
BP Fellows,
When utilizing the Assignment of Mortgage Payments (AMP) or Subject To strategies, is it realistic that a Lender will call the note?
If so, can someone provide a testimonial about it.
In addition, if a Lender does call the note then can the Buyer just refinance with a WRAP Mortgage?
Please, elaborate and add whatever respective comments to further understand the application of the AMP and Subject To strategies.
Thank you!
IMHO, if you're going to buy subject to (which I do not) this is NOT the correct strategy. If you're buying subject to you should be prepared to deal with a loan call by paying off the loan. Period. Refinance, get private or hard money, leverage another property, something. As far as the seller's concerned they've sold you the house. Now you say "sorry, I need to return this house." That would be devastating to many sellers. You bought it. In buying subject to you assume the risk of getting the loan called. Its your responsibility, IMHO, to mitigate that risk if it happens. If you're unwilling or unable to deal with that risk, don't buy subject to.
All good Doug but I read an implication there that if the lender (note holder) sees they can make more money by foreclosure they may act.......yes, a note buyer makes a greater yield from a discount if the note is paid off from any means, but they are only entitled to those amounts owed, nothing more. Then a redemption period may follow. But good post.
Wraps or installment sales cloud title too and some larger lenders especially view the risks of prolonged foreclosure or other matters where title and lien priority are an issue. It has a PITA factor to delay actions and time is money.
Wraps have not been illegal, they can be now depending on the seller/buyer and property type, as the seller extends financing. :)
I want everyone to know that I took a property Subject Too, did everything right according to my mentor who has done over 150 Sub-Toos.
3 years into owning this house with 5% interest loan with wet-dream tenant buyers US Bank contacted me asking me direct questions. I answered them honestly. They said you can't do that, I argued and reminded them the loan was current and had NEVER been late but it was like talking to this computer. He was a bean counter with no common sense. Sure enough they sent me notice...30 days.. pay up or we are coming for it, and they did!
I have found the insurance part relatively easy if you list the original note holders as additionally insured and have an insurance agent that understands the transaction
@Greg H. it may not be too difficult to get insurance on a sub to property. Having just had to go through a big claim on my residence, I would guess that if you actually have a claim on a sub to property you may well never collect on the insurance. The checks I received are all made out to me and the lender. You have to send the check to the lender and get them to endorse it. There's a process. If the lender sees a check made out to you (the sub to buyer) and them but not their insured they're going to, at best, ask questions. If the previous owner is named on the policy, they're going to have to sign the checks, too.
I'd like to hear from anyone who's done a sub to, had a claim and actually been able to get it paid.
@Greg Hall yes they foreclosed on a current loan and sat on it playing their usual lender foreclosure games for close to 2 years and sold it for $25 grand less than was owed on it at the time.. I could of had my tenant buyers to the bank and got cashed out by then. I predicted everything that happened to that idiot at the bank and it happened exactly as I said it would. All cause he didn't have common sense.
Best thing I can tell u folks that r doing this is to have CYA forms signed with the seller and tenant buyer that this loan has a due on sale clause and could b called in at anytime if so they hold me/u harmless.
An Attorney in Austin does a bunch of wraps and has the seller sign a limited power of attorney at closing to handle insurance matters. He charges a good fee to close and "maintain" the transaction until the loan is paid off
I get the power of attorney. I don't believe that's going to work if you have a check made out to "Joe Seller". Maybe it will. But I think you're bumping into potential insurance fraud in this situation. Again, I'd really like to hear from someone who's been faced with this situation and gotten paid. This was my first ever homeowner's claim and I was truly amazed how difficult the process was.
We've never had a problem with insurance claims. The contractors were paid directly and then we wrote a check for the deductible. I'm wondering if the type of insurance you are buying or the company you are using is the source of the problem.
You can't use a homeowner's policy. Some insurers are better for Sub2 than others. We use State Farm mostly. But, make sure you are working with an experienced agent who understands sub2 and understands you want to be transparent.
Insurance needs to be addressed in the financing assumption agreement. The policy can remain in the borrower's name. You can also add an additional insured. A POA can be used, but you can simply do an assignment of loss proceeds for disbursements made to a contractor and the insured. An assignment of loss proceeds is common as contractors may require them for work to be done. The banks are aware of assignments in paying one or more contractors or having an interest in a loss, so it's not all red flags. Changing the insured is a red flag.
You can pay an attorney to do an assignment of loss proceeds or, just ask your insurance agent for their form at no charge! :)
I want everyone to know that I took a property Subject Too, did everything right according to my mentor who has done over 150 Sub-Toos.
3 years into owning this house with 5% interest loan with wet-dream tenant buyers US Bank contacted me asking me direct questions. I answered them honestly. They said you can't do that, I argued and reminded them the loan was current and had NEVER been late but it was like talking to this computer. He was a bean counter with no common sense. Sure enough they sent me notice...30 days.. pay up or we are coming for it, and they did!
So what happened to your seller and your tenant buyers? The sellers now have a foreclosure on their credit. What kind of agreement did you have and did they threaten to sue you? Did the tenant buyers have a deposit and did they get it back? Did they threaten to sue you? How much did you put into the deal?
Something is so, so wrong with this deal if it put 3 parties at risk of loss. Not to mention the lender who took a bath. At least with a straight foreclosure loss is limited to the borrower and the bank.
I had CYA forms signed by the seller that he understood there was a due on sale clause and he holds me harmless should the loan be called due or go into default for any reason. He completely disappeared and told me he didn't want to be found with no forwarding contact.
I fought and tried to keep the house, the loan was current. However the guy at the bank was a bean counter with no common sense.
As for the tenant buyers, they had been perfect, never gave me any problems, never late. However they was suppose to be paying bills on time, etc and they got behind on some medical bills which snagged their credit. They were at or pass due time to cash me out so when this started happening with the bank I got them with a lender and he told me it'd b at least a year or better till he could get them financed. I asked them bout this and they agreed. I had stipulations in our agreement which they had breached and forfited their down payment, and monthly credit. I told them to stay as long as they wanted payment free till the bank made them leave.
Have not done any sub too deals since, I'm scared to death of them. I was hit hard by the real estate melt down, I live with my parents and made $28,000 last year. Trying to get a better income as I need to financially take care of them now and they may have to sell the house. My real estate days are over. :(
From what I have read in this thread, it sounds to me like the problem is the fact that you were not prepared for the worst case scenario and in doing so, placed not just you, not just the seller, but also a third party in harms way. All of this could have been avoided with the proper risk mitigation and exit plan.
The DOS clause is certainly a real issue, but rarely does it ever come down to the bank actually exercising their DOS legal right.
Regarding your last post which I did not read until after my post above, it appeared that you had ample time to get the non performing tenant buyer out due to their failure to perform and sell or refinance and this, keep you and the original seller out of harms way.
Secondly, your last statement that your RE days are over is a very sad statement. Do you always give up so easily? Do you think that every successful person was successful on their first go round? Look at history, many famous inventors, politicians, businessmen, etc had many failures before finding success. If you truly are the type to give up so easily, then your statement says it all, if not, get back on that horse, learn from your mistakes and don't repeat them. You WILL make more, but keep them small and fewer and further between as you go. Experience and learning from mistakes is a great education.
Food for thought: Put yourself in the position of the Seller in a typical Subject to transaction. You lost your job and are not able to make the payments, to save your credit you sell your home to an investor subject to the existing loan. Two plus years later, you have a new job, you have re-established credit and want to buy a new home, but you discover you can't because there is still an outstanding loan in your name. Your quite irritated because no one ever told you that you would have this problem. You only sold the property to the investor to save your credit, but that is of no benefit to you if your can't get a loan because of the outstanding loan in your name. So you call the mortgage company and tell them what is going on, and ask them to remove you from the mortgage, of course they don't. There a few directions this can go after that, but most are not going to end up well for the investor. Most subject to investors do not have this problem because they sell before that two year period.
Lesson learned. Maybe. "I want everyone to know that I took a property Subject Too, did everything right according to my mentor who has done over 150 Sub-Toos [sic]." If so (that's a separate post), Volume doesn't mean Diddley. Doesn't represent quality. Time for people to pay attention.
The claim is "US Bank contacted me asking me direct questions. I answered them honestly. They said you can't do that, I argued and reminded them the loan was current and had NEVER been late but it was like talking to this computer. He was a bean counter with no common sense. Sure enough they sent me notice...30 days.. pay up or we are coming for it, and they did!" I saw this 'back in the day' with Wake county builder foreclosures... Suntrust and developers/builders. The bottom line is business can sometimes be brutal. Lessons learned. They CAN. And they sometimes DO.
Jon. My +1 on your experience. I've seen it on a catastrophic claim with State Farm, but none of these were 'Subject To'. +1 on State Farm for non-Owner Occupied claim. (No issues with named insured from the LLC. My experience (as field service manager/member (jr. member at the time)) was just as Jon says.)