Subject To // Lease option

4 Replies

Hello, A little background on the situation:

I purchased a home to rehab and put back on the market, once the rehab was complete the market had softened and a few more homes in the area had come online making for a buyers market. After 3 and a half months with no traction I pulled the house and listed it for rent.

I had a company contact me with the proposal of facilitating the transaction and finding an end buyer from which the buyer would be putting down 10% of the purchase price ($55k) and cover the mortgage including all other payments such as taxes, insurance and HOA.

This all sounds fine, however the Buyer would take possession of title and I would no longer be considered the owner and would just be offering Seller financing at that point. My question is, should the Buyer default would the house come back to me through a deed of trust, or would the current lender have positioning over me and take it over? I'm not sure if this company is someone I can trust and should move forward with. Any suggestions or advice would be greatly appreciated.  

@Andy Farra Do you have a loan on the property or do you own it outright?

If you own it out right then you could offer owner financing on terms and set the terms how you like. If you have a mortgage in place then they are buying it subject to the underlying mortgage. That is a specialized contract and I would have your lawyer review their version.

The risk you take is they do not pay your loan and yes you are responsible for that mortgage. I have a clause in my subject to contract that says if I do not pay the mortgage for a 90 day period I quit claim deed the home back to them.

California law is different

What is the existing financing on the property now since you bought it, PITI?

If there is existing financing on the property and do you want to sell it on terms

You can look at a lease with option

Or you can look at a lease with right of first refusal

Getting approved for a mortgage is not easy today

If there is a due on sale clause on the current mortgage, you have limitations.

Please describe the existing financing.

Hi Andy, 

Love the idea of having the quitclaim in the contract.  You can also consider hiring an escrow company to service the loan.  Or have the buyer make payments directly to you and you pay the underlying note that is of course still in your name.  If they stop paying you can A. have them quitclaim title back to you or begin the foreclosure process against them.  The fact that they are giving you 10% down provides a margin of safety to you since they now have skin in the game.  

Hope this helps.