Looking for advice: We just closed on our first sub-to deal as end buyers (woo hoo!). We are responsible for the mortgage as of January 1 - but it's come to our attention that they stopped paying it back In October 2024. So they are two months behind.
In this case, who is responsible for the catch-up? We already paid them a pretty sizeable entry fee ($30k) to cover some of their equity and debt in another project.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
1y
Assuming it wasn't addressed in your PSA specifically then it likely should be them, but the reality is it is likely you. You have the most to lose now since you'd be out all of your investment if the FC goes ahead. I question how you got here though? No one pulled a payoff to confirm the balance or looked at the latest statements before closing?
I'd look at the closing docs for something related to the pro-ration of expenses etc and see if you have anything there that could be a clause you point to for them to cover those payments. Was it included as a credit/debit on the HUD so it should have reduced your cash to close? But if they don't willingly make the payment your only option would be to sue, and they have the upper hand to let the lender know about the sale possibly triggering DOS. They were already headed to FC, so in a sense they have nothing to lose...
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
1y
Assuming it wasn't addressed in your PSA specifically then it likely should be them, but the reality is it is likely you. You have the most to lose now since you'd be out all of your investment if the FC goes ahead. I question how you got here though? No one pulled a payoff to confirm the balance or looked at the latest statements before closing?
I'd look at the closing docs for something related to the pro-ration of expenses etc and see if you have anything there that could be a clause you point to for them to cover those payments. Was it included as a credit/debit on the HUD so it should have reduced your cash to close? But if they don't willingly make the payment your only option would be to sue, and they have the upper hand to let the lender know about the sale possibly triggering DOS. They were already headed to FC, so in a sense they have nothing to lose...
Thanks, Matt! This is super helpful and I can't emphasize enough how this first sub-to purchase has been a lesson in "I don't know what I don't know."
I spoke with the title company who is still helping us wrap up the set-up of a servicing company, and she confirmed that they would be responsible for the principal / interest for Nov and Dec, while we are responsible for the escrow shortage balance (as agreed upon).
Not sure how it was missed - not my favorite title company to work with. But thank you for providing the language to bring it up to the title company!
Thanks, Matt! This is super helpful and I can't emphasize enough how this first sub-to purchase has been a lesson in "I don't know what I don't know."
I spoke with the title company who is still helping us wrap up the set-up of a servicing company, and she confirmed that they would be responsible for the principal / interest for Nov and Dec, while we are responsible for the escrow shortage balance (as agreed upon).
Not sure how it was missed - not my favorite title company to work with. But thank you for providing the language to bring it up to the title company!
Looking for advice: We just closed on our first sub-to deal as end buyers (woo hoo!). We are responsible for the mortgage as of January 1 - but it's come to our attention that they stopped paying it back In October 2024. So they are two months behind.
In this case, who is responsible for the catch-up? We already paid them a pretty sizeable entry fee ($30k) to cover some of their equity and debt in another project.
.
Your title report should have alerted you to the issue.
The payoff the escrow company got from the lender should have alerted you to the problem.
Your interview of the seller before you bought the house, should have alerted you to the problem.
You calculations on the numbers should have alerted you to the problem.
Check, cross check and check again. Sellers will lie to you and you have to "trust but verify"
It's your problem. You did things outside of the normal without proper knowledge. Not fun, expensive lesson, but "woo hoo" you got a subto.