Subject to deal - Escrow account question

[Sid Siddiqui]

Hello All, 

Seeking some experts advice. I have searched through the bigger pockets forms and pod casts and really have not found the answer that I'm looking for. I recently did a subject-to deal and now I'm in the middle of wrap around the existing note and owner finance the property. My questions is that I'm currently making the mortgage payments on the first note for couple of months that already has an escrow account under the seller's name of course and now that I have buyer for the property, I would like to setup an escrow account to make sure I collect the taxes and also ensure the property is insured. My attorney just called and said I'm not able to setup an escrow account on top of existing escrow. My buyer wants to pay monthly payment including PITI so they don't have to go out and get a separate insurance and make another payment. How do I secure my asset if in case it burn down tomorrow. If I call the bank and try to cancel the existing insurance policy on the first note, they probably will not like that, and I'm afraid of the due on sale clause. I'm little bit stuck here and need help?

I'm sure as a real estate investor, someone has done the transaction where you take the property subject to and then sell it with owner finance with a wrap? In simple words how do you handle the escrow?

Thanks!

[Grant Kemp]

Thanks for the bat signal, @Jerry Puckett 

@Sid Siddiqui That's actually a much simpler answer than I think you'll believe, but the answer is that you don't need to do anything. Your underlying lien already has escrow, so when you sell the wrap, your buyer will be paying the same escrow account. You'll just have an agreement with your seller and buyer at closing that's an assignment of escrow funds. I also recommend you have your buyer bring a 1 year pre-paid insurance policy to the closing table which would replace the existing insurance. Just make sure you work with someone who's had experience with this so you can ensure the names are all listed correctly on the insurance policy. The other option is to add the buyer on as a named insured on the current insurance policy.

Don't forget to employ an RMLO for processing your buyer. With having only done 1 property, you're not required to adhere to SAFE or RESPA, BUT Dodd-Frank has no De Minimus rule and still applies. You want to shoot for a Qualified Mortgage in order to gain the protections QM status affords you in court (heaven forbid it ever goes there). Also, make sure your attorney has done wraps before and is providing adequate disclosures (like the underlying lien disclosure as required by Texas state property code). Many attorneys just draw up a note and DT then call it a day. In my opinion, this is FAR from adequate for a deal of this nature.