SUBJECT TO -> WRAPPED.. Need Some Insight

[Amir Beheshtian]

Hi! I wanted to share a transaction that our team and I are currently going through...

3 months ago we bought a property in Florida (SUBJECT TO) (~3% interest rate). We wanted to rent it out but aren't getting as good of tenants as we hoped, so instead we wanted to put it up on the market as a seller financing deal- we got so many hits!

This past month we've been entertaining an offer for a buyer to pay us 16% down @ 7% Interest (5,4,0,0,0 prepayment penalty) - property for sale @ $360k. The buyer is looking to put 3 people on the loan in order to get their DTI around 55%. After reviewing their financials, we were still a bit weary and were thinking of possibly putting in a performance deed in place for which if they miss payments, we recoup the property. Thoughts?

They also had reasonable concerns of how they (buyers) can ensure they won't lose the property (we put in a clause that we'd take the risk but won't get into the details in all that), what's another way we could've relieved them here?

We plan to either service this ourselves or use a third-party servicing company like West Star to facilitate receiving and making payments. Thoughts?

We are a bit concerned on the insurance side, as the current mortgage holder (from the subject to deal) still has his insurance and we added our insurance. So what I believe we'll need to do is remove our supplemental insurance and have the new buyer add theirs. But we want to avoid adding risk on calling the loan. Thoughts?

One important note to add is that these new buyers are non- permanent residents and have only been in the country for 4 months, they're really eager to get the property which is why they added this third person on the loan in order to bring their DTI down. They all have full time jobs making ~40k year + supplemental income from food delivery apps. Any concerns there?

Would love if people can give me their thoughts on this.

Thanks all!

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Amir Beheshtian:

Hi! I wanted to share a transaction that our team and I are currently going through...

3 months ago we bought a property in Florida (SUBJECT TO) 

We Solve Subject To Problems

Well, let's look at this from the 40,000 foot perspective. You bought using Subject To.  Let's say you sell on Owner Financing, what happens if the lender calls the note due? You know, the Due on Sale. 

Since you've sold it, you no longer control  the property. What will you do, foreclose on your buyer and take the property back? No can't do that because they've been paying on time. 

If you have a non-paying buyer you have to foreclose and in Florida, that takes a loooong time. After serving missed payments notice, in Florida, it usually takes between 140 to 215 days (4.5 to 7 months) to foreclose

How about paying of the lender. Well, if you can come up with the amount to pay it off in 30 days, that might work.  If you don't and it goes to foreclosure you get sued by the person you bought from for breach of contract, equity skimming and trashing their credit and you get sued by the person you sold to for violating your contract with them. 

I guess at that point the Attorney General looks into things. No, can't go that way, too much at stake. Don't need that kind of attention.

It's situations like these that people hire us to sort out for them and keep them out of trouble. I'm always available for a phone call, just DM me.

now that Mike has scared you into his camp.

lets talk about how to do this.  First off selling on a wrap has a lot RISKS as Mike points out. If you dont have the CASH to pay off the first then deeding the property to a new buyer probably is not a good idea just in case one of the worse case scenarios arise as Mike pointed out.. So to simplify and since these are new to the US extra.. maybe just a lease option to them and dont transfer title.. you cant do a deed in lui up front legally..  There is a lot of risk doing these deals Just to get a lower rate.. i get that part of it and the fact you did not have to qualify.. But generally to do this correctly you need to have cash or lines of credit to take out the first in the case of a Note call.