Sub 2 - Seller having buyer remorse
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Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
2yThere's a whole lot wrong here. There are times when a real estate attorney is the only way to proceed and this is one of those. Also, you will want to make sure that the telephone conversation you recorded is within a state that allows for one-party consent (meaning you) as that is not the case in all states including mine.
Best...
28 Replies
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2y
At the moment , I haven’t contacted the title company just yet. The seller just mentioned this.
I re- read through all my closing documents where she signed off on the “assumption of existing mortgage agreement” which spells out that the loan stays in her name and the affects of it. A “waiver approval” for the mortgage company without consent”
I have a call with the old seller next week , I have kept my communication line open and she hasn’t said anything until 8 months later. I was trying to hold back from getting a lawyer and going down that route because she has said anything about legal action. Her sentiment now I understand you got the house and the money you gave me helped me BUT she wants more and feels I took advantage of her as we worked on this deal for 4 months (following up to close).
I do have the conversation of the phone call where she agreed to subject to and the closing docs which were notarizes.
- I could refinance, just would be higher interest and payment but I could do that
- I have a tenant in the property so I could not renew lease next year and sellOr
- do nothing and wait for the seller next move hoping it doesn’t get messy.
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2y
Yes, he went through a lawuiy before with a seller in sub to deal he mentioned he had to pay his lawyer $10,000 and the original seller lost the case.
He known of an another investor who went through a lawsuit and original seller lost as well.
I was just wondering how it would work if they tried to do a loan modification or file bankruptcy even through I’m making the payments.
- 2yRobert PaynePro MemberReal Estate Agent · Bowling Green, KY · Member since 2023 · 36 posts · 36 votesYou need to sell the idea to her again. It made sense then, it makes sense now, you just need to help her see it.
- 2yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
There’s a difference in terminology if you want to get technical of taking over a mortgage and taking over the payments of the mortgage. You recording her own phone conversation repeating that you’re taking over the mortgage may not be enough. If she said you’re taking over the payments of my loan, then that could be a little stronger that the seller understood, and now is simply playing dumb.
Too many new investors try to gloss over the fact that the loan will stay in the sellers name when they are doing business. One of the reasons for this is that the Sub2 investor may be nervous that the seller will say no.It should have been perfectly clear that the loan was going to stay in her name and you was taking over making the payments on her loan. You was not assuming anybody's loan. Did you have the seller sign disclosures that are clearly stating that the loan will stay in their name and could affect their DTI? Also, was there disclosures disclosing the due on sale clause?
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2y
Quote from @Joe S.:
There’s a difference in terminology if you want to get technical of taking over a mortgage and taking over the payments of the mortgage. You recording her own phone conversation repeating that you’re taking over the mortgage may not be enough. If she said you’re taking over the payments of my loan, then that could be a little stronger that the seller understood, and now is simply playing dumb.
Too many new investors try to gloss over the fact that the loan will stay in the sellers name when they are doing business. One of the reasons for this is that the Sub2 investor may be nervous that the seller will say no.It should have been perfectly clear that the loan was going to stay in her name and you was taking over making the payments on her loan. You was not assuming anybody's loan. Did you have the seller sign disclosures that are clearly stating that the loan will stay in their name and could affect their DTI? Also, was their disclosures disclosing the due on sale clause?
We have had a handful of Seller circle back around and want the loan out of their name, but not too many because we tried to really emphasize the point that the loan stays in their name upfront and for those it say they do not or did not know that they have signed multiple forms stating they did..
Hey thanks Joe yes, very great explanation. There were documents at closing that I read and even read over again today two documents that state exactly that the loan will stay in the sellers name, it mentions the impact. The negative impact of the seller of payments are missed, the seller also mention reviewing that document as well.
What kind of prompted this was she was trying to file a 1098 form for her taxes and wanted to claim the interest for the half that she has. I made it clear that the loan would stay in her name and I would take over the mortgage paymentsand that she would receive $5000.
- Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes2y
There's a whole lot wrong here. There are times when a real estate attorney is the only way to proceed and this is one of those. Also, you will want to make sure that the telephone conversation you recorded is within a state that allows for one-party consent (meaning you) as that is not the case in all states including mine.
Best...
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2y
Quote from @Patricia Steiner:
There's a whole lot wrong here. There are times when a real estate attorney is the only way to proceed and this is one of those. Also, you will want to make sure that the telephone conversation you recorded is within a state that allows for one-party consent (meaning you) as that is not the case in all states including mine.
Best...
Yes, I did look that up in Michigan is a one party consent state so I would be fine on that end. I would hope I don’t have to go the legal route as I would wait and see if she is just threatening or if she’s actually going to go further. from the sounds of it when I spoke to her before she didn’t really have the money to continue paying the mortgage and fixing up the house but I understand that things do change.
thank you for your feedback, if I do need a lawyer, I will get my ducks lined up just in case it goes that way. Which it sounds like from one of my mentors who’s been in real estate for 22 years when he went through a subject to he won the case, but had to spend $10,000 on a lawyer.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes2y
Make sure the seller isn’t a senior or you’re not going to like going to court.
You say she thinks she might have been taken advantage of. If you go to court make sure she wasn’t. You say you paid $500 and took over the mortgage. Did she have less than $5k in equity? If you say she had $20k in equity and gave her $500 you probably don’t want to go to court. ESPECIALLY if she’s a senior as she was taken advantage of. And doing that to a senior is a big no no. Especially in regards to their home.
You could be “right” and still lose big time in court.
ps. I assume she can get out of this pretty easy by simply mentioning to her bank that she “sold” you the house months ago. If you didn’t steal her equity the easy out for you might be to just refi before it becomes a legal issue. It’s just too easy for your random judge to not like the idea. - Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes2y
Quote from @Bill B.:
Make sure the seller isn’t a senior or you’re not going to like going to court.
You say she thinks she might have been taken advantage of. If you go to court make sure she wasn’t. You say you paid $500 and took over the mortgage. Did she have less than $5k in equity? If you say she had $20k in equity and gave her $500 you probably don’t want to go to court. ESPECIALLY if she’s a senior as she was taken advantage of. And doing that to a senior is a big no no. Especially in regards to their home.
You could be “right” and still lose big time in court.
ps. I assume she can get out of this pretty easy by simply mentioning to her bank that she “sold” you the house months ago. If you didn’t steal her equity the easy out for you might be to just refi before it becomes a legal issue. It’s just too easy for your random judge to not like the idea.this^^^^ if i was on a jury and heard about an elderly person being taken advange of by one of you subject too people, id find a way to find you guilty
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2yI can confirm that she is not elderly. This was a rental property for her that was in need of repair.
Quote from @Jack Seiden:
Quote from @Bill B.:
Make sure the seller isn’t a senior or you’re not going to like going to court.
You say she thinks she might have been taken advantage of. If you go to court make sure she wasn’t. You say you paid $500 and took over the mortgage. Did she have less than $5k in equity? If you say she had $20k in equity and gave her $500 you probably don’t want to go to court. ESPECIALLY if she’s a senior as she was taken advantage of. And doing that to a senior is a big no no. Especially in regards to their home.
You could be “right” and still lose big time in court.
ps. I assume she can get out of this pretty easy by simply mentioning to her bank that she “sold” you the house months ago. If you didn’t steal her equity the easy out for you might be to just refi before it becomes a legal issue. It’s just too easy for your random judge to not like the idea.this^^^^ if i was on a jury and heard about an elderly person being taken advange of by one of you subject too people, id find a way to find you guilty
- Real Estate Agent · Chesterfield, MI · Member since 2017 · 53 posts · 7 votes2y
Quote from @Bill B.:
Both of those things help a lot. How much equity was there?
She would have to fix up the house to sell for $220K- $230K and mortgage is for $172K. So after closing cost would be $30K-$40K
- Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes2y
Quote from @Jay Jonez:
I can confirm that she is not elderly. This was a rental property for her that was in need of repair.Quote from @Jack Seiden:
Quote from @Bill B.:
Make sure the seller isn’t a senior or you’re not going to like going to court.
You say she thinks she might have been taken advantage of. If you go to court make sure she wasn’t. You say you paid $500 and took over the mortgage. Did she have less than $5k in equity? If you say she had $20k in equity and gave her $500 you probably don’t want to go to court. ESPECIALLY if she’s a senior as she was taken advantage of. And doing that to a senior is a big no no. Especially in regards to their home.
You could be “right” and still lose big time in court.
ps. I assume she can get out of this pretty easy by simply mentioning to her bank that she “sold” you the house months ago. If you didn’t steal her equity the easy out for you might be to just refi before it becomes a legal issue. It’s just too easy for your random judge to not like the idea.this^^^^ if i was on a jury and heard about an elderly person being taken advange of by one of you subject too people, id find a way to find you guilty
That’s somewhat helpful, thought the fact that you are a licensed agent isn’t gonna help You either
- Member since 2018 · 1k+ posts · 1k+ votes2y
Quote from @Jay Jonez:
At the moment , I haven’t contacted the title company just yet. The seller just mentioned this.
I re- read through all my closing documents where she signed off on the “assumption of existing mortgage agreement” which spells out that the loan stays in her name and the affects of it. A “waiver approval” for the mortgage company without consent”
I have a call with the old seller next week , I have kept my communication line open and she hasn’t said anything until 8 months later. I was trying to hold back from getting a lawyer and going down that route because she has said anything about legal action. Her sentiment now I understand you got the house and the money you gave me helped me BUT she wants more and feels I took advantage of her as we worked on this deal for 4 months (following up to close).
I do have the conversation of the phone call where she agreed to subject to and the closing docs which were notarizes.
- I could refinance, just would be higher interest and payment but I could do that
- I have a tenant in the property so I could not renew lease next year and sellOr
- do nothing and wait for the seller next move hoping it doesn’t get messy.
You have a tenant. Your tenant is entitled to quiet enjoyment. Make sure that in your financial machinations you account for the potential damages the tenant will be entitled to.
- Chicago Area, IL · Member since 2024 · 54 posts · 49 votes2y
Sub-to laws vary from state to state, so definitely make sure any legal documents were prepared/reviewed by a local lawyer familiar with this transaction type.
As far as whether someone was taken advantage of... Make sure you have documented comps at the time you presented to her. And mortgage rates at the time. There are several ways that people can view as being taken advantage of. If prices were coming down because of interest rates going up, but she had a low rate, then taking over the loan, while giving her the lower valuation, and subtracting all closing costs, including a sales commission that wasn't paid, might look as if all the advantages went your way. Especially since equity is usually fixed and broken down into equal payments, without interest being paid on the balance.
Hopefully you had a lawyer involved in this, and be careful what you say or admit now. Reinforce that Sub-to is not a new transaction type, that many have been done, and the documents provided explain everything, and were included at the closing. Talk to a lawyer. I'm not sure if her trying to mess up the transaction could result in your having to sue for damages. But I wouldn't mention that unless you have talked to a lawyer and are sure of what you can do. But assuming the loan and her not losing equity to a normal sale are part of the reasons she has the equity that she does, and changing those terms would have meant a different sale price, and less money back to her. One guide on contracts is that if everything is to the advantage of one side, then the contract isn't valid, and may be overturned in court. List the ways she benefited and emphasize those when talking to her. If she hires a lawyer, and she loses, then that was just wasted money for her.
Hopefully, you've read these:
Is There a Problem with Buying Properties Subject-to Existing Financing?
How to structure a subject to loan with a downpayment (house is on market)
- Investor · Rochester, MI · Member since 2017 · 1k+ posts · 584 votes2y
Just refinance it and call it a day, give her what she wants you lock yourself in a 30 year mortgage and go on the next deal.
- 2yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
Wow just wow! We got one poster saying or insinuating that there’s a problem with somebody making more than $5000 profit if doing a sub2. ( how did he come up with such a number?)
Another person saying they would find a way to find a person guilty that does Sub2. (who's the real questionable person here?)
I joined Bigger Pockets probably 13 or 14 years ago and then I canceled my account and reopen one several years later.. It was somewhat understood after being on Bigger Pockets after a short period of time that talking about Sub2 deals were taboo.
Then Bigger Pockets did a book deal with Pace Morby that had been doing sub2 shorter periods of time than many of the bigger pocket members. However, it is obvious that Sub2 is still considered taboo in the eyes of many of the members. Pace has made it more questionable than ever before due to his self marketing methods and such….
Look folks if you don’t like Sub2, then don’t simply attack a noob poster asking questions and make up laws and rules on the fly that doesn’t exist.Why don’t you make more of a noise to Bigger Pockets to pull down Pace’s book deal? if Bigger Pockets stands firm on their money making procedure with Pace’s book then understand that Bigger Pockets is not the place to attack folks for doing sub2 or talking about it.
Just saying…
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Arsen Atanasovski:
Just refinance it and call it a day, give her what she wants you lock yourself in a 30 year mortgage and go on the next deal.
I agree.
For those regarding whether it is legal or not. Just look at cases with Vision Properties or Harbour Portfolio. They were buying up foreclosed HUD homes by the tens of thousands, doing no repairs and selling to people on contract for deeds. These people were able to view the homes, inspect them etc. Even though the transactions all seemed legit with underwriting - they ended up getting sued and paid huge fines and in some states had to convert the loans because they were believed to have been taking advantage of buyers, especially minority buyers.
So even though something seems legal, would you want the story on the front page of the newspaper is the question we ask.
7e investments53 Reviews - Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
If you are doing subj-to, you should have the reserves / capability to refi. Just refi and be done with it.
Personally, to this layman a document titled "Assumption of existing mortgage agreement" doesn't help your case. You aren't "assuming" the loan... that's why its subj-to. So, you've got not so good documentation.
I'm still confused as to what is the issue. The 1098? She received mortgage interest?? Guess I'm fuzzy on how this subj-to was setup. She wants to claim interest payments on her taxes? So, let her claim the interest... Should be cheaper than you getting a new loan.
She probably wants more because she probably could have gotten more if she just sold the public market.
- Investor · Rochester, MI · Member since 2017 · 1k+ posts · 584 votes2y
Well folks your going to be hearing a lot of these stories, thanks to Pace while he is making money on membership fees and selling his book, it’s funny to me how people take this to face value. There should be warning labels on these books lol! Pace never mentions that he has an army of Attonerys, has his own title company and had a person that was a title company owner that mentored him all these years most likely for free lol. Anyways short story you can explain to any seller what you like todo, but life is life and it can change and when it does the seller will find ways to secure their interest. It’s funny how now the seller has an issue with this……..tax season???? Just refi and move on.
- 2yRob TennysonBusiness MemberIrvine, CA · Member since 2023 · 16 posts · 7 votes
I'm no tax expert but here is how I understand it. With subject to, the seller keeps the mortgage in their name and therefore would receive the tax benefits. If you assumed the mortgage there would be an approval process with that mortgage lender to get your name on the mortgage documents and then you would get the tax benefits.
Most mortgages are not assumable and it's quite a lengthy process to get them assumed.
Best of luck to you. Let me know if I can help any further.
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