Wraps and due on sale clause
T. Alan CeshkerPro Member
Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votesWraps and due on sale clause
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesQuote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
Alan
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
Alan
OK other than paying off the mortgage everything else you describe is just trying to get away with something that you know gives the lender the option to call the note.. and deed flip flop is going to cause tax implications as someone who was raised i sub to and wrap my dad did them in the 70s and 80s and I have bought about 200 sub 2s but my play was just to fix flip and sell not to own long term this is where the risk comes especially those that wrap these to buyers that may or may not pay.
paying off mortgage is the ONLY sure fire way to make sure these dont end up in a mess.
87 Replies
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2yThanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
Alan - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
Alan
OK other than paying off the mortgage everything else you describe is just trying to get away with something that you know gives the lender the option to call the note.. and deed flip flop is going to cause tax implications as someone who was raised i sub to and wrap my dad did them in the 70s and 80s and I have bought about 200 sub 2s but my play was just to fix flip and sell not to own long term this is where the risk comes especially those that wrap these to buyers that may or may not pay.
paying off mortgage is the ONLY sure fire way to make sure these dont end up in a mess. - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2yFYI - I am coming from over 20 years of closing more than 15,000 wraps -- just in Texas.
Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
Most of your hypotheticals have never occurred in these over 15k transactions.
If you are saying you cannot do them -- I understand but disagree.
I was hoping to haev a discussion of how can we tighten up and make things more secure - vs nay sayers and negative nellies
We are closing around 30 to 40 per month -- we are using trusts -- we are fixing when they need fixing. Not 1 of the over 15k wraps have gone back to bank.
Come on guys -- let's have an actual discussion on how to better the industry vs poo pooing on anything written
My circle is good -- we do things correctly and as risk free as possible -- just looking to get even better - always looking to improve
Let's Go! - Paradise, CA · Member since 2015 · 1k+ posts · 871 votes2y
Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
Deeding back would cure the breach and end the lender's default declaration. No lender would prevail in accelerating for due on sale if the offending borrower was placed back on title. Other than that, i agree with most of your postings.
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2y
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @T. Alan Ceshker:
FYI - I am coming from over 20 years of closing more than 15,000 wraps -- just in Texas.Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
Most of your hypotheticals have never occurred in these over 15k transactions.
If you are saying you cannot do them -- I understand but disagree.
I was hoping to haev a discussion of how can we tighten up and make things more secure - vs nay sayers and negative nellies
We are closing around 30 to 40 per month -- we are using trusts -- we are fixing when they need fixing. Not 1 of the over 15k wraps have gone back to bank.
Come on guys -- let's have an actual discussion on how to better the industry vs poo pooing on anything written
My circle is good -- we do things correctly and as risk free as possible -- just looking to get even better - always looking to improve
Let's Go!...and I'm a lender that has made thousands of loans over 33 years and has run the special assets division for a bank. I realize you've done this a lot, but what your advising people to do is to conceal material facts from me and my lending bretheren to induce us to make or not make decisions in favor of your client that might not be qualfied thereby weakening our portfolios. I know you want to have a discussion and I think we're having it. You're knowingly advising people to circumvent my/our underwriting process(es)...the process we lenders use to protect our depositors or investors. You might think its a victimless crime, but it's not. I'll also question the fact that you've done 15,000 wraps with none defaulting. If delinquency rates run at about 0.6% (give or take depending upon the institution), then math tells us that about 90 of them should have defaulted. I'm sure you have good intentions, but when I see someone posting that they, as an attorney, are telling their clients to partake in concealment at my expense...I'm going to raise the issue.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2y
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
Deeding back would cure the breach and end the lender's default declaration. No lender would prevail in accelerating for due on sale if the offending borrower was placed back on title. Other than that, i agree with most of your postings.
fyi - the trust is a very good system in that the full appearance of Garn St Germain compliance exists. A lender would have to sue to unequivocally establish lack of compliance. If they do, deed back to seller/borrower and buy time to get rid of the loan or issue in other ways -- there are always options if you are working with the right office.
I am in no way advocating wrongful conduct -- any more than loopholes around tax codes -- perfectly legal and promoted by the tax experts.
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2yA borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forum - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @T. Alan Ceshker:
A borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forumI can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders.
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2yYou missed the salient question -- Lender has borrower liable for loan --- a wrap occurs -- there is now a new person (in addition to the first) that is liable for the loan -- 2 people are liable -- how does this decrease the security of the lender -- they still have their "approved" borrower -- and now they have another -- approved or not -- they have 2 -- 2 is better than 1 -- yes?
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
A borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forumI can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders.
If not -- please identify how 2 people liable to pay me is worse than 1 - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
TRUTH EXACTLY hastag or whatever the kids do these days.... your exactly right there is going to be a new crop of F up title and deals and the banks and servicers are going to look to remedy these deals through increased diligence on title transfers and then pop them right into default. - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @T. Alan Ceshker:
You missed the salient question -- Lender has borrower liable for loan --- a wrap occurs -- there is now a new person (in addition to the first) that is liable for the loan -- 2 people are liable -- how does this decrease the security of the lender -- they still have their "approved" borrower -- and now they have another -- approved or not -- they have 2 -- 2 is better than 1 -- yes?Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
A borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forumI can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders.
If not -- please identify how 2 people liable to pay me is worse than 1It does weaken our position in many ways when the old borrower is under the assumption, as they are in the majority of sub-to deals that I've seen, that they no longer have to make payments and the new person is going to do it. The concealment you are advocating usually also means that the original borrower is not getting statements...but I'll get to a specific instance in a moment. Sub-to is the reason for the Due on Sale clause being added to the docs in the first place. One big issue, however, is that these loans are usually securitized. Investors who purchase the bond-like mortgage backed securities are provided a prospectus in which the nature of the assets held in the portfolio must meet specific guidelines and specific vetting processes for ALL borrowers. Transferring title to a new entity without the permission of the lender/traunche does, indeed, erode the risk rating of the loan and, thus, the risk rating of the portfolio as a whole potentially causing a credit downgrade. If you recall prior to the last crash, people used the same question you just did..."what's the harm"...when it came to adding or maintaining assets in a traunche where specific underwriting procedures weren't followed for all borrowers. Once again, my concern is your advocation of concealment. A lie of omission is still a lie regardless of the legal loopholes you use to justify it. Lenders are harmed via that concealment. Original, unsavvy borrowers, more often than not think that they no longer are on the hook for the loan. One case in point was where I served as an expert witness in a foreclosure case in Hillsborough County, FL. A borrower thought they were no longer responsible for payments and Wells Fargo was only sending statements to the address of the property. Wells didn't know to send the statements to the original borrower because of the concealment you are advocating. The attorney that asked me to be the witness represented the original note holder. As statements were not going to him, because of the concealment, he had no idea that the "new borrower" as you put it had not been making payments. He only learned of the delinquency when the lis pendens was filed and he was served. In most cases, your "new borrower" does not have 2 of the "C's...capacity and character/credit of the original borrower, but they are the ones getting the statements and supposedly making the payments. The policies you advocate most certainly do harm us lenders. You've mentioned on several occassions that you are in the wrong forum. Why do you feel that way? Do you feel the people on BP can't grasp what you're trying to say? I think we do...some of us just might not agree with your position.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Account Closed:
Your comment: "How is that any different than concealment in cases such as bankruptcy?"Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Not to put too fine a point on things, but concealment in bankruptcy is very different than violating the Due on Sale and not telling the bank.A lie of omission is still a lie. Concealment does have a material impact on pay back. It's actually closer than you might think...see my response just now to Mr. Cishker...
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
...I would love to continue this spirited debate, but I actually have to get to my job. I'll pile back in another time. Good chat.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
FYI - I am coming from over 20 years of closing more than 15,000 wraps -- just in Texas.Quote from @Account Closed:
Quote from @Account Closed:
Quote from @T. Alan Ceshker:
I want to start a discussion re the due on sale clause
We are seeing more issues re lenders calling notes due. Some because of mistakes with insurance. But, some due to lenders looking.
One lender/servicer is HomeLoanServ. They actually are looking at prior foreclosures that were reinstated.
What are you folks seeing? Are you taking measures to protect your deals?
Thanks and let us know -- let's get info flowing
Alan
We do a lot of creative financing. The only real solution is to be well capitalized, experienced and selective, as we are.
Unfortunately, what is popular and is being highly pushed on youtube is to do subject to on over leveraged properties on the MLS, that the market has already said isn't worth what the seller is asking. (Long Days on market) and then using secondary financing for closing and carrying costs. Buyer has no skin in the game. Likely has no access to credit either.When a due on sale is called on a wrap, it is a very serious problem. Since the property has changed hands and probably to an end buyer who is living in the property, the only solution is for someone to pay off the loan. Who should that person be? The correct way would be for the person who sold on a wrap to pay off the underlying note and carry the note himself. Investors, especially the group doing this on a shoestring, are not in a position to take that approach.
There is no equity to do a refinance and in order to sell, to cure the due on sale, the "buyer" would have to bring money into closing, money he really doesn't have in most cases. Switching to an executory contract also violates the due on sale.
Banks aren’t stupid. Putting the transaction into a land trust and trying to hide ownership creates a problem when a legal action is taken against the borrower or property. (Lawsuits, liens, bankruptcies and so on). People need that notification to address the issues that arise.
Deeding back to the original borrower is still a violation of the due on sale. The lender can choose to enforce at their discretion. Deeding back creates tax problems, possible chain of title problems and costs money the "buyer" may not have. Because of the issue with title fraud in some markets, CA, NV, Phoenix, Dallas, Atlanta, Nashville deeding back may trigger an investigation into fraudulent transfer. In foreclosure rescue or bankruptcy you can have similar problems.
Even a change in servicer or selling the note from one lender to another can create a series of late payments that needs to be sorted out.
It’s just better to do these properly from the start. Be well capitalized, get proper training (not youtube training) and follow the rules.
Most of your hypotheticals have never occurred in these over 15k transactions.
If you are saying you cannot do them -- I understand but disagree.
I was hoping to haev a discussion of how can we tighten up and make things more secure - vs nay sayers and negative nellies
We are closing around 30 to 40 per month -- we are using trusts -- we are fixing when they need fixing. Not 1 of the over 15k wraps have gone back to bank.
Come on guys -- let's have an actual discussion on how to better the industry vs poo pooing on anything written
My circle is good -- we do things correctly and as risk free as possible -- just looking to get even better - always looking to improve
Let's Go!...and I'm a lender that has made thousands of loans over 33 years and has run the special assets division for a bank. I realize you've done this a lot, but what your advising people to do is to conceal material facts from me and my lending bretheren to induce us to make or not make decisions in favor of your client that might not be qualfied thereby weakening our portfolios. I know you want to have a discussion and I think we're having it. You're knowingly advising people to circumvent my/our underwriting process(es)...the process we lenders use to protect our depositors or investors. You might think its a victimless crime, but it's not. I'll also question the fact that you've done 15,000 wraps with none defaulting. If delinquency rates run at about 0.6% (give or take depending upon the institution), then math tells us that about 90 of them should have defaulted. I'm sure you have good intentions, but when I see someone posting that they, as an attorney, are telling their clients to partake in concealment at my expense...I'm going to raise the issue.
agreed you cant have 15k deals and ONE default that is simply not possible. people die people get up set they lose jobs all sorts of events that cause payments to be missed and foreclosures to commence - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @T. Alan Ceshker:
You missed the salient question -- Lender has borrower liable for loan --- a wrap occurs -- there is now a new person (in addition to the first) that is liable for the loan -- 2 people are liable -- how does this decrease the security of the lender -- they still have their "approved" borrower -- and now they have another -- approved or not -- they have 2 -- 2 is better than 1 -- yes?Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
A borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forumI can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders.
If not -- please identify how 2 people liable to pay me is worse than 1OK now lets talk real world your assuming the original seller is still of good financial strength and that the wrap buyer is of good financial strength. This may be the case on the original buyer for instance someone like me.. Who does have the ability to cut a check if the loan is called.
But real world is many of these are foreclosure rescues I know thats how I got all 200 of mine.. so that seller is out of the game and agreed their credit is already trashed etc.. So no one is deeding back to them. The wrap buyer is generally a that is an investor many times highly leveraged or poor credit risk.. And the middle man well they usually have their dough and no personal liablity and could give two craps if it works or not.. thats reality on many of these and how its going to play out.
This all works for the very well capitalized company that can handle these things.. and I am not sure in Texas if on the wrap you use an all inclusive Deed of Trust like I used in CA.. thats a great deed of trust it does give the wrap seller standing to start a foreclosure on their own while still making the payments.. it also precludes the slimy sub to buyer that may just take the wrap buyers payments and default to their seller I have seen this happen many many times and bailed out more than 10 of these. Its all fine when it all works but there is no way you can have perfection of 15k deals and not have some warts and some bad ones were the players just go dark and walk away which causes the underlying lender into a foreclosure.
And with this new crop being trained as @Account Closed is alluding to this is for sure going to happen exactly how i described it. - Paradise, CA · Member since 2015 · 1k+ posts · 871 votes2y
Quote from @T. Alan Ceshker:
You missed the salient question -- Lender has borrower liable for loan --- a wrap occurs -- there is now a new person (in addition to the first) that is liable for the loan -- 2 people are liable -- how does this decrease the security of the lender -- they still have their "approved" borrower -- and now they have another -- approved or not -- they have 2 -- 2 is better than 1 -- yes?Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
A borrower, opposing counsel, adversary in any manner is only required to disclose what they are required to disclose. I liken it to Officer and A Gentleman quote "I will do all things fair and unfair to trip you up". We have no requirement to advise the lender of their permissive right. Failure to advise of this is not a breach, not fraud, not a misrepresentation, not a breach of duty, not a breach of contract -- nothing.Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Simple -- the fraudulent actions and misrepresentations you reference are against statutes and contractual terms. The due on sale clause is a permissive act allowed to the bank and not a prohibitory clause. Very simple.
In a wrap, nobody is deceiving the bank. They just are not proactively advising a permissive right has been triggered. This is not actionable conduct and any attorney that says it is -- is wrong and likely trying to scare their clients into buying something from them - legal services, coaching, docs or otherwise.
I may be in the wrong forum for a high level discussion on how to make wraps safer and more risk free than they already are.
Maybe someone will pop out soon and have something other than misinformation and scare tactics.
I remain hopeful
Thanks
Alan
Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with.
Let me ask you this -- since you are on the lender side of things -- how is a lender harmed by having their borrower required to pay their investment each month - ie the mortgage -- and another party now required to pay the mortgage each month. How does this harm a lender. I do not care if the second liable party is the worst credit risk know since man existed -- how does this harm the lender that 2 are liable to pay? It only increases the chance their mortgage is paid and their investment is sound and protected.
Let me know re this
But -- wraps are not leaving -- all the nay sayers in the world can post misinformation and fear mongering -- they will exist -- I merely wanted to provide a venue so we can do them as legal and sound as possible.
Again - maybe wrong forumI can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders.
If not -- please identify how 2 people liable to pay me is worse than 1Two people aren't liable for the loan. Only the original borrower is liable. The 2nd borrower/buyer may be liable to the 1st borrower but that has nothing to do with the underlying note and DOT. The lender has no duty to the 2nd borrower and vice versa and in fact, the lender may be negligent to regulatory agencies, examiners, investors, the U.S. Treasury Department and more, knowing about and looking the other way regarding the 2nd "borrower".
Also, 2nd borrower is on title and 1st borrower isn't. How is security not reduced!? That's like saying, "Yeah, i know the bank is on the pink slip with me as the registered owner but i sold it to a guy an he's gonna make payments to me. Of course he'll keep the insurance up. Of course he'll list the lender as loss payee...yadda yadda". In this scenario and in most situations where there is a sub to or wrap, the 2nd borrower lacks the capacity to obtain financing in the first place so by definition, the risk is increased. You think the lender's security isn't in jeopardy?
- Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes2yNot certain how to work the quote/reply vs reply -- but trying to have my last reply to the "this is illegal" this is unethical" "this is whatever" crowd and try to get to a discussion on structuring wraps for the investors doing these the right way
I have closed over 15,000 wraps without one going back to the bank. We have had buyers default and we cure. We have had lenders call due - and we cure.
I am looking for a discussion amongst investors on how to overcome the poor teaching by gurus, tighten up the industry, and get solid wraps accomplished.
There is no harm to the lender when a wrap is completed. I argued this before the Texas legislature successfully. A lender has a borrower -- if the borrower cannot pay and they sell via a wrap, then that betters the lender because another is now paying. Lenders want payments. They do not want qualified payments -- they want dollars monthly. If the new buyer does not pay - the lender is in no worse position than if the investor did not come along.
I buy via non-qualified assumption and sell via seller finance wrap. If my buyer does not pay -- I do. Then I recover property and sell to a new buyer -- and make dollars. Lender remains 100% in the same position as before the wrap and after the wrap. The wrap is a nullity to the business of the lender. Period.
I will engage with those looking to advance discussions on bettering wraps for all and not discuss the esoteric people's money ethical concerns of fictitious harms to billion dollar companies - sorry -- just being real here for a bit.
Thanks to all -- but I prefer to discuss an improvement to an industry vs the fictional worries of those trying to invent wrongdoings to lenders.
Thanks much to all
Alan - 2yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votesSo due to a couple of in your face sub2 gurus and the potential of newbie investors muddying in the water the attitude has been in the past and is now anti-Sub2 to the most part on bigger Pockets.
Quote from @T. Alan Ceshker:
Not certain how to work the quote/reply vs reply -- but trying to have my last reply to the "this is illegal" this is unethical" "this is whatever" crowd and try to get to a discussion on structuring wraps for the investors doing these the right way
I have closed over 15,000 wraps without one going back to the bank. We have had buyers default and we cure. We have had lenders call due - and we cure.
I am looking for a discussion amongst investors on how to overcome the poor teaching by gurus, tighten up the industry, and get solid wraps accomplished.
There is no harm to the lender when a wrap is completed. I argued this before the Texas legislature successfully. A lender has a borrower -- if the borrower cannot pay and they sell via a wrap, then that betters the lender because another is now paying. Lenders want payments. They do not want qualified payments -- they want dollars monthly. If the new buyer does not pay - the lender is in no worse position than if the investor did not come along.
I buy via non-qualified assumption and sell via seller finance wrap. If my buyer does not pay -- I do. Then I recover property and sell to a new buyer -- and make dollars. Lender remains 100% in the same position as before the wrap and after the wrap. The wrap is a nullity to the business of the lender. Period.
I will engage with those looking to advance discussions on bettering wraps for all and not discuss the esoteric people's money ethical concerns of fictitious harms to billion dollar companies - sorry -- just being real here for a bit.
Thanks to all -- but I prefer to discuss an improvement to an industry vs the fictional worries of those trying to invent wrongdoings to lenders.
Thanks much to all
Alan
There are a few posters on Bigger Pockets that have a lot of experience and they are somewhat adamant that Sub2 are not illegal, but do hold some risk.
I realize that you made this post with the hopes of gaining inside and recommendation, but the chances are you’ll simply get more challenges. 🧐
I did have a question for you. If you buy a property Sub2 in a trust and then you want to owner finance it would it simply come out of the trust? And if it came out of the trust, would not that defeat the purpose of placing it in trust?
Thanks for adding additional points of view to this. :-)
- Real Estate Agent · Atlanta, GA · Member since 2020 · 414 posts · 233 votes2y
As opposed to writing Seller Financed deals where there is a loan in place, I've been writing them with the lease with option to purchase route.
Tax benefits stay with the seller until title is transferred, but it still get's the point across.
Safer for both parties as 2nd position liens will get wiped out if the first calls the loan / forecloses here in Georgia.
- 2yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
Quote from @Josh Bowser:
As opposed to writing Seller Financed deals where there is a loan in place, I've been writing them with the lease with option to purchase route.
Tax benefits stay with the seller until title is transferred, but it still get's the point across.
Safer for both parties as 2nd position liens will get wiped out if the first calls the loan / forecloses here in Georgia.
A lot of controversy about lease options here in Texas. there’s people that claim to be experts saying they’re doable and then there’s other people that claim to be expert saying stay miles away from lease options.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes>A lie of omission is still a lie.
Quote from @Doug Smith:
Quote from @Account Closed:
Your comment: "How is that any different than concealment in cases such as bankruptcy?"Quote from @Doug Smith:
Quote from @T. Alan Ceshker:
Thanks for the question
Yes it does
First - get insurance in place correctly -- use a proven insurance provider -- this is most important
Educate seller to not contact the bank
Use a trust structure to have the conveyance appear to comply with Garn St Germain
Be ready to fix if needed via a deed flip flop or paying off the mortgage
These transactions should only be attempted by experienced and ready investors -- those with the knowledge and ability to fix if needed
Thanks
AlanHi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?
Not to put too fine a point on things, but concealment in bankruptcy is very different than violating the Due on Sale and not telling the bank.A lie of omission is still a lie. Concealment does have a material impact on pay back. It's actually closer than you might think...see my response just now to Mr. Cishker...
there is no such thing by any definition of lie that I have ever seen. Omission is not a lie by definition. Therefore a “lie of omission” is not a lie.
Choosing to not disclose something is not a lie by definition.
Until there is a law that mandates disclosure of sale, there is no requirement to notify upon sale.
I personally think a seller using sub to is taking a big risk and I would never choose to do it. Buying sub to also has risk especially if the property is being sold at an inflated price due to the sub to which is the case on properties that have not sold for an extended period of time. Do not over pay for the property to obtain sub to financing without realizing that due on sale is a possibility.
Best wishes
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