"subject to" on a BRRRR property with construction loan

Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes

Hey everyone, i am wondering if any one has done this or has any thoughts on this situation.

I have an opportunity to take over a rehab loan, subject to, that is about half way done. Seller wants out for financial reasons. There are some funds that still can be drawn to finish up the rehab. From my end, it is a decent deal. Anything i should look out for or do?

Also, trying to wrap my head around how i would trust seller to pay the mortgage if i send him the money every month. I know i could make the payment too though. Trying to avoid issues with lender.

Thanks!

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Rick Imby
Member since 2019 · 59 posts · 28 votes
7y
You can use a Title company to dole out the funds you pay to make sure the loan gets paid. There are several articles about Subject to loans on the forum. There are people way more knowledgeable than me on this. Good luck.
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Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
7y
@Ryan Deasy why don't you just purchase it as is and pay the mortgage yourself? Then you can set up your own financing, finish the project, and either sell it or rent it out.
I would not want a partner, or to leave him in control of making mortgage payments.
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Michael Thompson
Indianapolis, IN · Member since 2014 · 206 posts · 127 votes
7y
@Ryan Deasy - Why don’t you make the payment directly to the lender? That’s what we do when we buy subject to.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
I'm guessing this involves a HML? If so, they will be much more likely to pull the trigger on a Due On Sale clause. I'd only do it with the lender on board.
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Justin Hammond
Investor/Developer · Salt Lake City, UT · Member since 2015 · 207 posts · 106 votes
7y
@Ryan Deasy When you say rehab loan, what do you mean? Is it hard money?
If you buy it subject to, just make payments directly to the lender. Get a limited power of attorney that authorizes you to communicate with the lender and take the remaining draws.
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Ryan Deasy
OP
Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
7y
@Justin Hammond thanks. yes correct hard money. I have considered that, i just figured this would certainly alarm the lender and yield a greater chance of them calling the loan due. any thoughts?
@Wayne Brooks thank you. i am curious. Why do you think an HML would be more apt to pull the trigger than a regular conventional bank?
@Michael Thompson thank you. have you done this with an HML? if so, what was your experience?
@Matthew Irish-Jones thank you. i could do that. i was just trying to avoid going through that process, paying points, and all the other costs associated.
@Rick Imby thank you. i didn't know that was possible. i will have to ask my attorney about this.
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Justin Hammond
Investor/Developer · Salt Lake City, UT · Member since 2015 · 207 posts · 106 votes
7y
@Ryan Deasy yeah if it’s a hard money lender you definitely want them on board with it. But don’t be afraid to ask them. As someone who frequently lends hard money, I have no problem with another investor stepping in the shoes of the original borrower if I feel they can get the job done. Most lenders aren’t going to call it due and take the property, it’s typically not their business model.
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Justin Hammond
Investor/Developer · Salt Lake City, UT · Member since 2015 · 207 posts · 106 votes
7y
@Ryan Deasy but make sure you communicate with them. I’d prob call it due if I didn’t get the courtesy of communication
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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
7y
I would think you could to this through a title company as Rick said. Usually with subject to's you pay the mortgage yourself even though it stays in the seller's name.
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Michael Thompson
Indianapolis, IN · Member since 2014 · 206 posts · 127 votes
7y
@Ryan Deasy - No never with a HML. I agree with @Justin Hammond and you should tell the lender. Especially if you are an established flipper.
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