Subject to existing financing - help!

7 Replies

I have the opportunity to buy a house subject to existing financing, with plenty of equity and a great rate. What exactly do I say in my letter to the lender when I notify them?

Ack!  You don't notify the lender.  That's like saying "Hey, I've just violated the terms of your loan.  I'm ready for you to call it."  You want to avoid them finding out, if possible.

Lots of folks say there's little risk, and calls do seem rare.  But you should still have a way to refi if the loan does get called.

@Jon Holdman

I've got backup financing lined up just in case. So you're saying that the change on the insurance policy would be notice enough?

@David Morgan what are you trying to accomplish?  Normally folks who do this sort of deal do their best to avoid the lender finding out what you've done.  There's nothing you can to do make it OK.

The new insurance information is a way that the lender can find out about the change.  Good luck if you ever need to make a claim.  When you get a check from an insurance company for a claim on a mortgaged property, it will be made out to you and the lender.  The lender has to endorse it.  They often have onerous processes to make that happen.  Some go so far as to make you endorse the check and send it to them and they they pay for the repairs.

@Jon Holdman an attorney has me scared. In Tennessee, if someone procures or induces a party to break a contract, that person can be sued for triple damages. And a bank attorney might argue that the damages are the total interest they would have earned from the loan. On a $300,000 loan, three times total interest is a considerable sum. So by notifying them, I was hoping to at least alert them that we're attempting to be above board about it. 

I've seen posts by Bill Gulley and others here who list lender notification as one of the steps in a sub2, I'm just trying to get my head around what I need to do.

Thank you for your guidance, it's very helpful.

Is the loan you taking sun too a VA loan??? If so you can assume this loan and just take over without any risk of the loan being called due. As long as you qualify with the lender. I️ know an investor who had a loan called on him by the lender and he suggested to leave the sellers insurance in place and don’t cancel it. Then you buy your own insurance on the side. Keep paying the sellers insurance and keep that in place so there is no cancellation and then the insurance you purchased covers you.

@Mike Flora it's conventional, and I wouldn't qualify due to becoming an independent contractor this year. I can get a collateral-based loan from a local bank if the note is called, but nothing conventional. Good idea, though.

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