Indianapolis, IN · Member since 2013 · 16 posts · 0 votes
I have a situation where I have a person who just wants to get out of their home and I can take over the payments, how do I start this process and what paperwork do I use?
You dont need to do a wrap mortgage, just 'get the deed' as Ron Legrand would say. Its gonna vary by state, but basically you just get him to deed it to you, get a power of attorney to deal with the mortgage company and start making his payments. I haven't done one in a while because everything I've bought lately has been from banks, so there may be some new stuff, but I've done well over a hundred of these over the years here in Georgia. I hardly ever pay off a loan that's in place when I buy something from an individual.
The due on sale clause does not make it illegal, just means the bank can call the loan due if they want. I've never actually heard of this happening when the loan was current, but it could. If that's gonna keep you up at night, you could structure it as a lease option, but you have WAY more control taking it sub2. Doing a wrap makes you pay the seller who then pays the bank. You can just own it and pay the bank directly by having them deed it to you 'subject to' the existing mortgage.
I usually closed them at the attorney's office, but just for credibility, you can do it yourself if you want. Transferring real estate is amazingly simple when there's no mortgage company involved.
Make sure you can still get in touch with the seller, though. I had some problems getting payoffs and such when my POA was 3+ years old even though I owned the house.
My advice is to find someone local that's done a few in your state to walk you through it. The closing attorney may or may not know how.
These are usually not legal because of the due on sale clause.
This is not a true statement. WRAP's and subject to are both legal, the lender just has a contractually granted recourse in the event you do it. As long as you are ok with the potential consequences then there is no legal issue.
In response to the OP, search here on BP there are literally hundreds of threads on Sub2/Wraps. Another option if you'd like a little bit less potential issues(though you won't hold title to the property) you can do a Master lease or Master lease option. Here is a Blog post on master leases, and here is another for you.
You dont need to do a wrap mortgage, just 'get the deed' as Ron Legrand would say. Its gonna vary by state, but basically you just get him to deed it to you, get a power of attorney to deal with the mortgage company and start making his payments. I haven't done one in a while because everything I've bought lately has been from banks, so there may be some new stuff, but I've done well over a hundred of these over the years here in Georgia. I hardly ever pay off a loan that's in place when I buy something from an individual.
The due on sale clause does not make it illegal, just means the bank can call the loan due if they want. I've never actually heard of this happening when the loan was current, but it could. If that's gonna keep you up at night, you could structure it as a lease option, but you have WAY more control taking it sub2. Doing a wrap makes you pay the seller who then pays the bank. You can just own it and pay the bank directly by having them deed it to you 'subject to' the existing mortgage.
I usually closed them at the attorney's office, but just for credibility, you can do it yourself if you want. Transferring real estate is amazingly simple when there's no mortgage company involved.
Make sure you can still get in touch with the seller, though. I had some problems getting payoffs and such when my POA was 3+ years old even though I owned the house.
My advice is to find someone local that's done a few in your state to walk you through it. The closing attorney may or may not know how.
Thanks to all the replies. Darrell can you teel me what paperwork to use in proceesing this deal? Are you familiar with Indiana law? Simply put, how do I get the deed?
You'll need quite a bit of paperwork actually and if this is your first deal, you might consider wholesaling or bird dogging it to a more experienced investor who has a few under her/his belt. A few docs off the top of my head;
Authorization to Release
Insurance Cancellation Request
Letter Appointing Manager
Title Holding Trust docs
Loan Info Worksheet (Loan verification)
Power of Attorney
as well as a disclosure to the seller stating that you are buying it subject to and that it may be called, that it will remain on their credit, and that it could result in a foreclosure - basically, a release similar to what the doctor has you sign which states he/she is going to do minor surgery on you, but you may die and that you should be aware of that worst case scenario going in.
Hi, lots of changes in RE recently and poor or incomplete advice is not intentional. Search "Sub-to", "wrap transaction" you should find current posts, do some reading and consider the source of information by looking up those that give advice.
Pay attention to insurance issues, notice to lenders, using a special warranty deed and financing issues under the SAFE Act and the due on sale clause as it is used by lenders.
These are common transactions so on't get hung up with some program or method but follow local custom as advised by your attorney.. :)
Aaron knows his stuff apparently. I put them into a land trust, appointed another LLC to manage the property if I was holding them, and the insurance was always a pain. State farm would insure the trust and copy the lender, nobody else would. Don't know if they still will. You need to get your "CYA" letter signed laying out everything, too.
I do not know Illinois law, and, while I have my forms and would do one here without a second thought on the spot if someone was willing to give me a deed and the deal was right, there's not a good way for someone on here to walk you through this thing. Its not rocket science, but there are some pitfalls you need to watch out for and its a little more than "hey, sign this" Although, you really could just get a deed executed and own the thing...
My advice is like the others, read up on here and check with local investors and/or investor friendly attorneys in the area that can guide you.
Thanks for all the help in your replies. Can anyone tell me about hard money lending and can you cash out from them if I am saying this right. I have a possible deal where the seller will carry back. if neede I have more details, please help
Sounds like you might be acting on what you want to hear than really finding the issues about sub-2 deals. HMLs are looking at the value of the collateral and may lend up to 70% or so, meaning you'll need 30% + in the deal to get financing. They will be looking at the sale price or appraisal or their valuation and taking the lowest number, then 70% or so of that.
Doing a sub-2 you need to make sure you can take that seller out of the deal quickly, not only arising from the due on sale issue but from other disruptions like compliance with financing, or in case of an issue with your seller.
Don't think for a second that any disclosure about the seller remaining responsible and their credit being at risk will keep you getting sued and losing if you mess up, the disclosure is necessary giving full disclosure and is required by custom in most areas, but it's not a get out of jail card.
Terminating the insurance then getting a new policy with another insured being shown is a clear indication to a lender that there has been a sale. All you do is add an additional insured that may be added for various reasons.
Sub-2s are not illegal, there are new financing issues in doing one, but your local RE attorney will know what you need. Don't load yourself up with guru documents, as you need to follow local customs in doing these installment transactions. You certainly don't just get a deed.
Do your due diligence, things have changed and there are too many good ole boys you have done these in the past that advise on the internet, see your attorney, these are risky deals but can be done. Good luck. :)