What am I missing regarding land contracts and subject to's?

Question

Ok I must be missing something because all these deals seem to have balloon payoffs at some point.  No one wants to finance you forever especially if you're wrapping their loan.  What do you do when you have exhausted the amount of bank loans you can get and a balloon payoff is coming due?  I don't have this problem as I don't have this many mortgages (or any sub to's to be honest) but it does seem like there could be a difficulty down the road.  Suggestions?

Dion DePaoli · Answer

There is no permanent exhaustion of all available finance scenarios.  Assets can be liquidated to pay for the balloon.  Financing can be reconfigured to accommodate for the larger portfolio.  
	
	I am not sure that is what you wanted to discuss or not but the answer is pretty straight forward.  When you mention you have a financing barrier to getting a new loan, that can be overcome by consolidating the loans you have into one larger commercial loan and then you are repeat the residential buildup.  In addition, private capital sources can provide finance that might be easier to qualify for than a bank but you also might have to shop for decent rates.  
	
	In addition, not all banks have a residential loan limit.  Local and regional banks might be more willing to extend credit to a seasoned and successful local landlord.  The loan limit you refer to is more of a secondary market mortgage criteria.  
	
	There are many ways to deal with the issue of continued growth.  Growing business are growing customers for financial institutions, some programs and terms will change but they will still want you.  
	
	I am not sure what any of this has to do with land contracts or subject to transactions though either.  If you have a bunch of land contracts, you don' t have mortgages and I don't believe those will be fail the 10 loan rule.  In Subject To's, it will depend on how you handle the debt service of the original loan.  If you have a wrap, then you have a mortgage or deed of trust, if you have some other structure where a mortgage is not recorded, you may not fail the test either.  
	
	Note, those are not suggestions of non-disclosure, those are disclosing and underwriting not treating those assets the same as a mortgage obligation in the underwriting criteria of max loan numbers.