Investor · Indianapolis, IN · Member since 2013 · 647 posts · 196 votes
If I wanted to buy a house subject to in Indianapolis what would be the best way to structure the deal so that the seller is able to buy another house without worrying about their debt to income ratio being affected from still having the lien on the house that they sold me subject to?
According to Ron LeGrand in his state of Florida, the instrument that is used is called a wraparound mortgage. Here is a video of him explaining how it works in Flordida:http://youtu.be/qJ7lAOuokAI
He explains how every state uses a different instrument. If you live in a deed of trust state it would be called an "all inclusive deed of trust" or "trust deed", or it might be called a "land contract"or "land installment contract." This is all done buy purchasing the property in a land trust.
Has anyone in Indianapolis structured a deal like this to enable the seller to purchase another home in the new state they are moving to. If so, what instrument did you use? A detailed explanation of an example deal like this can be found in the above linked video.
@Jynell Berkshire have you facilitated any transactions such as this one?
Nothing you structure in a sub2 will take the seller's name off of his mortgage, allowing that debt to be ignored by a lender making another loan to that borrower, period. Any "system" claiming to accomplish that is just pure delusion.
I've bought sub to before, but I'm far from an expert. However, practically I have a hard time believing a bank is going to overlook a debt. If the mortgage is in their name they are liable for it. Regardless of the name on title. I'll be interested in how the thread turns out.
@Ben G. First thing is to make sure the bank the sellers existing mortgage is with knows you're taking over payments.
Secondly, you need to find out who the sellers new mortgage is with and write them a letter/email letting the lender know that you have assumed the sellers existing mortgage.
That's the strategy I've heard about. Never used it myself but it makes sense.
All I know for sure is land contracts are legal instruments in the state of Indiana
I'm holding a few in Indy I sold via seller financing.
Good luck I hope that helps.
Nothing you structure in a sub2 will take the seller's name off of his mortgage, allowing that debt to be ignored by a lender making another loan to that borrower, period. Any "system" claiming to accomplish that is just pure delusion.
You need to tell the seller upfront in the negotiation they stay on the deed for period of time, and the loan COULD be called due and payable. If they do apply for a new loan, list the previous loan on their 1003 loan application. Renting for a while is a good choice with sub2 sale.
You should send the lender notice that title has been transferred and send it certified mail.
Many investors assume the loan formally payments after 12 monthly payments having been paid on time. An assumption should be easier than a straight new origination.
Lastly, if the loan is called due, have a strategy to buy it, ie have a money - credit partner lined up, etc.
Well, sub-2 is not a land contract or a contract for deed, you take title in a sub 2, the other you don't those are installment sales, the sub-2 is a sale.
Notice to the lender has caveats as to notice and asking them to deny consent or consent is assumed, but this is only a ploy to justify the position of a buyer, it may or may not work.
As Brian mentioned, the due on sale can be an issue with either one.
Lenders will generally treat an installment sale the same as they do with a lease, 75% of income to off set the debt. If the contract is seasoned, they may exclude the debt. In the short term, less than 6 months into a contract, they may not count anything, understand too the lender realizes that the due on sale is also an issue and it will be the responsibility of their borrower who sold with such methods and it can effect their risks if a borrower is caught trying to make that payment as well as the new payment.,
Most loans are not assumable after any period, that lender/note servicingi/holder may simply make a new loan and conventional secondary market loans are not assumable, FHA/VA might be. Don't count on any assumption with any release of the original borrower, even VA assumptions still hold the initial borrower responsible under old VA loans.
Seller financing, sub-2, contract for deeds, lease options or financed options are all different animals in the zoo! To better understand how they bite you, you need to visit the zoo of comments to each specific forums. :)
I understand that there is no way to remove the seller's name from the mortgage, that wasn't what I was hoping to accomplish. What I was hoping to accomplish was referenced in the video that I mentioned. I'm assuming some of you didn't watch the video. The goal was to close using an instrument so that the sellers could use the subject 2 income/payment in their debt to income ratio.
@Shawn Holsapple Thanks for the great feedback Shawn. As always you come in, in the clutch! After putting the property in a land trust what is the instrument that is being used for the trustee to sell it to you. Have you explored the options mentioned in the video, such as a wraparound mortgage, deed of trust, or land contract? Or is your strategy of the trustee assigning it to you enough for the future lender to recognize that income for the seller when and if they decide to purchase another home?
@Shawn Holsapple been a while since I've been in the forums. Busy finding deals.
Say you are buying the house on a Lease Option and then assigning that LO to a tenant buyer are you still putting the property in a land trust and having the trustee assign their interest to you or is this not necessary when assigning a LO to a tenant buyer?
Ben, sorry, I didn't go to that video and listen to it, do I really need to?
Trusts will not do anything, waste of time IMO, but they are used to evade lenders and the due on sale issues, and may not be successful anyway, and to hide ownership, has nothing to do with the seller's obligation.
CFDs are not a good idea any more, I did tons of them, they were the post popular method to do a wrap.
Before you get into a CFD, read this, it's not guru stuff, it's by an attorney with atgf
A new lender for your seller should give credits along the lines as if the home were rented, 75% in the first year, after a year they may count the full payment as income to off set the payment required.
There is no trick, no method, no Trust, no way of a seller being released totally within one year of doing any installment sale when applying for a new loan in the secondary market, you may not even know how the underwriter addresses the matter. As Brian mentioned, the seller needs to know that, certainly don't want them to be misled. You have no issue doing a sub-to or L/O in IN. :)
@Shawn Holsapple been a while since I've been in the forums. Busy finding deals.
Say you are buying the house on a Lease Option and then assigning that LO to a tenant buyer are you still putting the property in a land trust and having the trustee assign their interest to you or is this not necessary when assigning a LO to a tenant buyer?
I don't buy with a LO but with Sub2. I then SELL on a LO.