Subject to, Sub 2, escrow accounts and insurance

5 Replies

Hi BP,

I have listened to several of the podcasts on BP and read several forum posts about subject to purchases, but I have a few questions regarding the logistics that I am hoping you can help me with.

When investors purchase a property using this strategy, what do they do about the escrow account? Any overages would be returned to the original owner I would think.

Also, how do you insure the property properly? Since the funds for the insurance policy are escrowed as part of the mortgage payment, the insurance would stay in the seller's name.

1. If the seller cancels their policy when they sell, the mortgage company would be notified and would need to contact the seller. The mortgage company will require an insurance policy in the name of the owner - who they think is still the seller. This would certainly be a trigger for the due on sale.

2. If the buyer obtains an additional insurance policy to cover them as owner, and leave the seller's policy in place, I would think that would cause an issue if there is a loss because are 2 companies going to pay a claim on the same property? Plus you would be paying for both of those policies increasing your costs.

3. Are those doing sub to deals just contacting the mortgage company and being up front about what you are doing and risking due on sale?

There must be something I am missing here, but I just don't see how the escrow and insurance issue is worked out. It sure seems like there are a many people doing these types of deals though so I am hoping to get some good insight. Thanks!

Just trying this post again and hoping to get some great responses!

@Matt Fish  Recommend you search this site on sub2.

I am always upfront with lenders and send them a 3rd party authorization as well as a POA. I also change ins policies and include them as additional insured. When dealing with the lenders I change address for all communications which allows me to receive any escrow overages. Checks received are still issued to previous owners but using the POA allows me to deposit into my bank.

Hope this helps.

@Rocky V. Thanks for the reply. I have searched BP for more info on my original questions, but the majority of what I found was about how to negotiate or explain a Sub2 or general questions about what it is. Guess I was missing the related posts.

I am curious how many sub2 deals have you done? How have the conversations with the lenders gone when you explain you purchased sub2? Have any told you what you were trying to do was not allowed under the lending terms? Have any brought up due on sale? Thanks again Rocky

I've done 15 since 2010.  Sold one outright this year and hold the others as long term rentals.   Keep in mind you are only a number to the majority of banks out there and all they care about is receiving their payment.  In my experience they do not care where it comes from.  Conversations are extremely easy after you send all appropriate docs.  None have ever mentioned due on sale clause but I have only dealt with large banks and no credit unions. 

@Rocky V.  

That's awesome!! 15 is great! Hope you don't mind a couple more questions. You stated "after you send all appropriate docs" - Besides your purchase contract, what are those other docs? Maybe a power of attorney type form so that you can discuss the loan?

Also, this may seem like a basic question, but do you just call the customer service number and speak with who ever answers or ask for a specific dept?

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