What can go wrong with Subject to Investing
Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes
What can go wrong with Subject to Investing
Most Popular Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesQuote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.
26 Replies
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I don't even know if this post is serious. Of course things can go wrong. It's usually things that people believe will go wrong in the future, but haven't gone wrong yet that is named .. There are certain individuals that are in your face selling their products/training and it has caused a negative reaction on Bigger Pockets if certain individuals were promoting Sub2. You'll get a lot of posters saying what could go wrong, but what could go wrong and what has gone wrong is not one of the same. If you don't think it's a good method, then don't do it. 🧐
If you don’t get enough response from this thread, simply reread some old threads they can get pretty long.- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
Jack,
since you run Gelt and do private lending, think of being in first position on a loan with a private lender and that lender just randomly assigns the loan to someone else without advising you. Then that person sells the property to someone else and slaps a second on it.
7e investments53 Reviews - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Joe S.:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I don't even know if this post is serious. Of course things can go wrong. It's usually things that people believe will go wrong in the future, but haven't gone wrong yet that is named .. There are certain individuals that are in your face selling their products/training and it has caused a negative reaction on Bigger Pockets if certain individuals were promoting Sub2. You'll get a lot of posters saying what could go wrong, but what could go wrong and what has gone wrong is not one of the same. If you don't think it's a good method, then don't do it. 🧐
If you don’t get enough response from this thread, simply reread some old threads they can get pretty long.90% of the risk is to the seller.. buyer has basically zero risk.. Lender has risk if as @Chris Seveney mentioned buyer puts a second behind your first this causes the first lender to have to go through a full foreclosure to remove the second in a default scenario.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Chris Seveney:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
Jack,
since you run Gelt and do private lending, think of being in first position on a loan with a private lender and that lender just randomly assigns the loan to someone else without advising you. Then that person sells the property to someone else and slaps a second on it.
We would not be happy at all. But people are still doing this all the time and I am trying to understand and learn about it.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2ySeller for sure has risks, I also think buyer does as well. I am trying to learn and understand them.
Quote from @Jay Hinrichs:
Quote from @Joe S.:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I don't even know if this post is serious. Of course things can go wrong. It's usually things that people believe will go wrong in the future, but haven't gone wrong yet that is named .. There are certain individuals that are in your face selling their products/training and it has caused a negative reaction on Bigger Pockets if certain individuals were promoting Sub2. You'll get a lot of posters saying what could go wrong, but what could go wrong and what has gone wrong is not one of the same. If you don't think it's a good method, then don't do it. 🧐
If you don’t get enough response from this thread, simply reread some old threads they can get pretty long.90% of the risk is to the seller.. buyer has basically zero risk.. Lender has risk if as @Chris Seveney mentioned buyer puts a second behind your first this causes the first lender to have to go through a full foreclosure to remove the second in a default scenario.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Joe S.:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I don't even know if this post is serious. Of course things can go wrong. It's usually things that people believe will go wrong in the future, but haven't gone wrong yet that is named .. There are certain individuals that are in your face selling their products/training and it has caused a negative reaction on Bigger Pockets if certain individuals were promoting Sub2. You'll get a lot of posters saying what could go wrong, but what could go wrong and what has gone wrong is not one of the same. If you don't think it's a good method, then don't do it. 🧐
If you don’t get enough response from this thread, simply reread some old threads they can get pretty long.Yes this was meant to be serious that's why I asked it
- 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesHi Jack, hope you’re doing well!
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use. - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
Hi Jack, hope you’re doing well!Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.Don, great points as usual from my cheap seats what I see coming down the pike and have personally experienced over the years in Sub to is this new crop of Guru pitching this form of acquiring real estate.. As such you have quite a few under capitalized Rookie investors jumping into this. As well as Sellers simply are not informed of the risk of devastating impacts to their credit scores and what equity they may have had in the property if the transaction fails.
For a well capitalized Investor and or company and a fully informed seller these can be structured as you note with a Wrap that keeps the seller with some control or ability to get the property back.
What I personally experienced was the under-capitalized beginners running out there talking multiple sellers into doing this.. Then the properties did not perform the buyers were counting on a little cash flow Delta that over time evaporated they had no ability to refi they were underwater on the exit IE sales cost and bringing loan current exceeded equity thereby needing cash to close.. And since the loans were not in their names and as you note Sellers did not know to ask for PG ( although in these cases PG is worthless) These folks walked and left the sellers in a very bad way.. Got turned into the AG and one group got nailed criminally I also had FBI in my office about another investor who did this as a financial predator he got prison.So in my mind this is going to play out again with Sub to being taught to the masses and people being people vast majority are honest of course but there will be predators mark my words on that. And Sellers will continue to do these deals without advice of council.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Don Konipol:
Hi Jack, hope you’re doing well!Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.thanks for the helpful info
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Jay Hinrichs:
Quote from @Don Konipol:
Hi Jack, hope you’re doing well!Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.Don, great points as usual from my cheap seats what I see coming down the pike and have personally experienced over the years in Sub to is this new crop of Guru pitching this form of acquiring real estate.. As such you have quite a few under capitalized Rookie investors jumping into this. As well as Sellers simply are not informed of the risk of devastating impacts to their credit scores and what equity they may have had in the property if the transaction fails.
For a well capitalized Investor and or company and a fully informed seller these can be structured as you note with a Wrap that keeps the seller with some control or ability to get the property back.
What I personally experienced was the under-capitalized beginners running out there talking multiple sellers into doing this.. Then the properties did not perform the buyers were counting on a little cash flow Delta that over time evaporated they had no ability to refi they were underwater on the exit IE sales cost and bringing loan current exceeded equity thereby needing cash to close.. And since the loans were not in their names and as you note Sellers did not know to ask for PG ( although in these cases PG is worthless) These folks walked and left the sellers in a very bad way.. Got turned into the AG and one group got nailed criminally I also had FBI in my office about another investor who did this as a financial predator he got prison.So in my mind this is going to play out again with Sub to being taught to the masses and people being people vast majority are honest of course but there will be predators mark my words on that. And Sellers will continue to do these deals without advice of council.
Sounds very scary from a buyers point of view. - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @H. Jack Miller:
Quote from @Jay Hinrichs:
Quote from @Don Konipol:
Hi Jack, hope you’re doing well!Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify. Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing. That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate? Will he “walk” away from a deal where he has little or no equity?
4. The structure of the transaction is much more important than is generally recognized. The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.Don, great points as usual from my cheap seats what I see coming down the pike and have personally experienced over the years in Sub to is this new crop of Guru pitching this form of acquiring real estate.. As such you have quite a few under capitalized Rookie investors jumping into this. As well as Sellers simply are not informed of the risk of devastating impacts to their credit scores and what equity they may have had in the property if the transaction fails.
For a well capitalized Investor and or company and a fully informed seller these can be structured as you note with a Wrap that keeps the seller with some control or ability to get the property back.
What I personally experienced was the under-capitalized beginners running out there talking multiple sellers into doing this.. Then the properties did not perform the buyers were counting on a little cash flow Delta that over time evaporated they had no ability to refi they were underwater on the exit IE sales cost and bringing loan current exceeded equity thereby needing cash to close.. And since the loans were not in their names and as you note Sellers did not know to ask for PG ( although in these cases PG is worthless) These folks walked and left the sellers in a very bad way.. Got turned into the AG and one group got nailed criminally I also had FBI in my office about another investor who did this as a financial predator he got prison.So in my mind this is going to play out again with Sub to being taught to the masses and people being people vast majority are honest of course but there will be predators mark my words on that. And Sellers will continue to do these deals without advice of council.
Sounds very scary from a buyers point of view.
YUP if they have little to no money and think they are going to make a score.. the risk is still fully on the seller.. Buyers get what they deserve.. - 2yT. Alan CeshkerPro MemberAttorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes
Quote from @H. Jack Miller:
Quote from @Chris Seveney:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
Jack,
since you run Gelt and do private lending, think of being in first position on a loan with a private lender and that lender just randomly assigns the loan to someone else without advising you. Then that person sells the property to someone else and slaps a second on it.
We would not be happy at all. But people are still doing this all the time and I am trying to understand and learn about it.
2 things
Why would a wrapped lender be upset if the property is sold and another person is now also liable to make payments to the mortgage company? Why would a 2nd hinder anything the first has before or after the 2nd being put in place?The risks are:
- non payment by buyer and must foreclose
- lender calls the note due
The answer to the 1st is to make sure there is a good down payment so dollar wise this does not harm seller.
The answer tot he 2nd is to use a land trust and appear Garn St Germain compliant.
Just my 2 cents
Alan
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2yThanks, I am not worried about the lender calling the loan I can put it off. I am worried about any issues with the seller and what they may of may not claim. One way to deal with that is to have them be represented by an attorney. But I am wondering if that's enough
Quote from @Account Closed:
I have only 3 things to say about Subject ToQuote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
1. Disclosure
2. Disclosure
and
3. Disclosure
It's rare that someone buying Subject To is upfront with the seller, that the buyer has no money to bail out the problem if the note gets called due. ;-) - Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes2y
I looked into it a few years back and decided it was too risky for me.
You can go terribly wrong if you think you can do 30 or 40 such deals with money down and/or cash reserves. There was a case some years ago called the "Porter Case" discussed in detail: Porter Case - Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Frank Chin:
I looked into it a few years back and decided it was too risky for me.
You can go terribly wrong if you think you can do 30 or 40 such deals with money down and/or cash reserves. There was a case some years ago called the "Porter Case" discussed in detail: Porter Case
thanks, I see a lot of comments, but not the case or what happened. Do you happen to know were i can find that? - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @H. Jack Miller:
Quote from @Frank Chin:
I looked into it a few years back and decided it was too risky for me.
You can go terribly wrong if you think you can do 30 or 40 such deals with money down and/or cash reserves. There was a case some years ago called the "Porter Case" discussed in detail: Porter Case
thanks, I see a lot of comments, but not the case or what happened. Do you happen to know were i can find that?
the porter case is the classic rip the rents dont pay on the first original owner get screwed. - Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes2y
Quote from @H. Jack Miller:
Quote from @Frank Chin:
I looked into it a few years back and decided it was too risky for me.
You can go terribly wrong if you think you can do 30 or 40 such deals with money down and/or cash reserves. There was a case some years ago called the "Porter Case" discussed in detail: Porter Case
thanks, I see a lot of comments, but not the case or what happened. Do you happen to know were i can find that?An article was cited in the discussion mentioning a link in the Akron Business Journal. But the link is no longer operable as it's so long ago.
The long and the short of it, Porter did about 40 sub-2's taking over the properties in a period of 3 to 4 years. She then collected rents and responsible for paying the underlying mortgages, all of them. She would have a tremendously large portfolio having invested nothing had things worked out. When a number of tenants fell behind or didn't pay the rents, she defaulted on over 20 of them because she had no funds of her own to cover it. As a result, a number of mortgages were defaulted and the banks repossessed. Because it's a sub-2, the mortgages were still under the original borrower's names. Problem was the original homeowners had no idea of the potential dangers they're in. The object of real estate investors is to help people through financial difficulties, not create bigger ones.
I'll look through my old records as I was involved with other discussions about this. There were posts on this site as well.
- Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes2y
Here's a previous discussion on this site on sub-2's: Sub-2 Discussion .....
- Lender · Member since 2024 · 60 posts · 26 votes2y
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
Here is my short list
- Due-on-Sale Clause: Most mortgages have a due-on-sale clause, meaning the lender could demand full repayment of the loan if the property is transferred to someone else without their approval. While it's not common for lenders to enforce this, it's still a risk.
- Lender Discomfort: Since the loan stays in the seller's name, if the lender becomes aware of the transfer, they may become uncomfortable with the arrangement, potentially complicating the process.
- Seller Risk: The seller is still legally responsible for the mortgage. If the investor fails to make payments, it could damage the seller’s credit, even if they've relinquished control of the property.
- Insurance Issues: A change in ownership might affect the property’s insurance policy. If the policy lapses or is canceled due to ownership changes, the property could be left uninsured, exposing both parties to risks.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Thomas McPherson:
Quote from @H. Jack Miller:
Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.
Here is my short list
- Due-on-Sale Clause: Most mortgages have a due-on-sale clause, meaning the lender could demand full repayment of the loan if the property is transferred to someone else without their approval. While it's not common for lenders to enforce this, it's still a risk.
- Lender Discomfort: Since the loan stays in the seller's name, if the lender becomes aware of the transfer, they may become uncomfortable with the arrangement, potentially complicating the process.
- Seller Risk: The seller is still legally responsible for the mortgage. If the investor fails to make payments, it could damage the seller’s credit, even if they've relinquished control of the property.
- Insurance Issues: A change in ownership might affect the property’s insurance policy. If the policy lapses or is canceled due to ownership changes, the property could be left uninsured, exposing both parties to risks.
thanks this is helpful
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes2y
Quote from @Frank Chin:
thanks so much
Here's a previous discussion on this site on sub-2's: Sub-2 Discussion .....
- Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes2y
Quote from @H. Jack Miller:
Quote from @Frank Chin:
thanks so much
Here's a previous discussion on this site on sub-2's: Sub-2 Discussion .....
That was very long discussion. As you were asking about news articles I cited, while the Porter Case ones are not available, the one about another scam involving sub-2's Foreclosure Scam
Joe Kaiser, a license realtor would in many cases acquire properties under sub-2, let it go to foreclosure, then pocket proceeds from the foreclosure sale where the lender had to refund proceeds above the unpaid mortgages to the owner of record. That's far above and beyond what Porter did. Although he was fined $3.2 million, as far as I know, no jail time. His license was revoked though.
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