No More 'Subject To' Transactions

Houston, TX · Member since 2015 · 29 posts · 10 votes

I just received an email from Phil and Shenoah Grove requesting investors to join forces and fight against a bill being proposed to legislation which will effectively STOP investors, buyers and sellers ability to purchase or sell properties 'subject-to the existing mortgage via a wrap around mortgage here in Texas. The bill is SB 1993, 1994 & 1995. They are asking for donations to help them fight this. If you know them, please contact them to get more information on how to donate and offer additional services to stop legislation from passing this bill? As we all know, there are always those that will not use this strategy to defraud buyers and sellers but for the most part, I want to believe more of us are doing these transactions the right way.

Thank you.

Sharon

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Account Closed

Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes

Yes, Yes, Yes let's do like Jay suggests and take away Subject To and let people figure out how to sell when there is no equity and we will see lots and lots of new foreclosures again! Yes! Let's all make lots of money on foreclosures instead of providing a "steam release" for stressed sellers. Who the heck cares about the seller anyway. They deserve to lose their property and credit because we can't provide Subject To. They were stupid to take out a loan in the first place.

The next thing we should do is regulate HML guys like Jay who lends, so that fix & flippers have to qualify at Chase or Goldman Sachs. In too many markets the HML crooks far outweigh the good guys in this and this practice needs to be stopped.

While we are at it, why don't we ban cars because one guy in Portland was too slow crossing the street and got hit by one.

It's like using a sledge hammer to remove a sliver.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Sharon,, sorry but for me this bill is long over due in many markets the crooks far outweigh the good guys in this and this practice needs to be stopped.
I see far to many guru's trying to teach new and or undercapitalized investors this strategy and its simply a train wreck waiting to happen.. If your properly capitalized you don't need sub too.
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Michael P.
Real Estate Investor · Dallas, TX · Member since 2009 · 183 posts · 153 votes
9y
I tend to side with Jay on this. The sub to route is the way someone with very little can get into the real estate game and control vast amounts of real estate. In a down market there are many people who are upside down or have little equity and something like this is appealing to them. The guys who get it under sub to can just absolutely destroy those home owners if they are not careful as they often don't have the reserves to bail themselves out if needed. They will just walk away as they really have zero skin in the game.
1 Reply
Ellis San Jose
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
9y
I am astonished how many freedoms are slowly being removed from this country. I agree there needs to be protections for the uneducated consumer, but if I want to sell my property subject to, I believe I should have a right to do it.
When interest rates were sky high & loans were difficult to obtain, subject to & creative financing allowed more avenues for sellers to sell.
12 Reply
Nick C.
Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
9y
@Jay Hinrichs Unfortunately even if the bill gets passed and it does become illegal, I doubt that will stop the gurus from teaching it. They'll continue to "teach" whatever draws the masses and subject to's and no money down real estate fills up the seminars.
2 Reply
Martin Zagrzejewski
Investor · Pearland, TX · Member since 2013 · 66 posts · 37 votes
9y
This really upsets me. Why are other investors who don't use sub2 in their playbook criticizing it. It's a completely legitimate way to invest even if you don't control huge amounts of capital. Of course you can't walk away without being sued for fraud. I know people say you don't have any skin in the game but an attorney wouldn't agree with you. Easy for original owner to sue you.
7 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Martin Zagrzejewski why ? because reality Is NO one SUES for these they don't have the money the seller just gets totally screwed when they unravel.. these transactions NEED oversight plain and simple too many crooks out there..
Most folks that sell these have no money so when it craters what are they to do ... just get wiped out and their credit trashed..
somehow you and others think we just sue like its free or something.. totally naïve thinking
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Martin Zagrzejewski
Investor · Pearland, TX · Member since 2013 · 66 posts · 37 votes
9y
Well when lawyers see rich investor in their sights I guess they just ignore common sense. Of course they'll sue you. I would expect to get sued and lose. As long as you have assets, you are a target. Doesn't matter if the plaintiff has no money. You can't legislate every crime away. That's why we have courts.
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Account Closed
Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes
9y
Sounds dumb and probably won't work. It's as if the "good old boys" are teaming up all around America to raise the barrier to entry into real estate. If the seller understands the risk and rewards I just don't get why it's frowned upon. Real Estate is a commodity, people on here need to stop acting like we're in this happy go lucky world where anyone who sells a property is this fragile being that we all need to tell up and save from the "broke" house flipper that's out to get them. All this proves is one thing: people need someone or something to hate and be AGAINST. I can trade my stocks, bonds, etc however I want to but not a house huh? Seems to be more emotion behind these beliefs than logic...
3 Reply
Martin Zagrzejewski
Investor · Pearland, TX · Member since 2013 · 66 posts · 37 votes
9y
Well apparently some people don't understand the sub2 process and that is fine but if you want to lob insults take it somewhere else.
2 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
Yes, Yes, Yes let's do like Jay suggests and take away Subject To and let people figure out how to sell when there is no equity and we will see lots and lots of new foreclosures again! Yes! Let's all make lots of money on foreclosures instead of providing a "steam release" for stressed sellers. Who the heck cares about the seller anyway. They deserve to lose their property and credit because we can't provide Subject To. They were stupid to take out a loan in the first place.
The next thing we should do is regulate HML guys like Jay who lends, so that fix & flippers have to qualify at Chase or Goldman Sachs. In too many markets the HML crooks far outweigh the good guys in this and this practice needs to be stopped.
While we are at it, why don't we ban cars because one guy in Portland was too slow crossing the street and got hit by one.
It's like using a sledge hammer to remove a sliver.
13 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Michael P. "They will just walk away as they really have zero skin in the game." You are clearly not aware of how many attorneys are out there willing to take the case if you do that.
There is so much case law on the issue that your argument makes no sense and is totally incorrect. You should do your research before casting uninformed opinions on a open forum like this.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed the point of this is SO many folks do sub too as buyers because they have NO money.. and therefor are judgment proof.. and the sellers as I stated usually have limited to no money as well.. they can't sue.. and NO attorney on the planet is going to take these cases on contingency the seller just gets royally screwed in a default situation as I stated ..
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
In the 95% of cases where someone got a traditional normal mortgage, the borrower signed something with a "due on sale" clause, meaning that selling it "subject to" is ALREADY ILLEGAL for the (typically) ignorant seller who doesn't know any better.
In that 95% of cases, the "buyer" by contrast either already knows it is illegal for the seller, or doesn't know it's illegal and is doing guru junk.
- For that segment doing guru junk from a place of genuine ignorance, this will make it explicitly clear that what they are doing is predatory and wrong, and hopefully they will stop.
- For the folks who already know it's illegal for the seller to do, but they are coercing sellers into breaking the law anyways, now they will have consequences.
(I'm being generous, I think, by saying 95% and not 99%)
- This is a reminder that it is NOT in any way illegal to buy a home using money you borrow from Cousin Billy, money that is used to pay someone else's mortgage off.
- It is also NOT illegal to save up the money and buy it by writing a check.
- It is also NOT illegal to rent a property from someone with a lease that allows subletting, and sublet it as a furnished rental on airbnb or YourHomeSuite or similar.
There are so many ways to NOT be predatory when helping someone out of a jam for profit, idk how to count them. Why do we feel that we should assume that we need to coerce someone to break the law to make a dollar?
6 Reply
Joel Packard
Real Estate Investor · Flagstaff, AZ · Member since 2017 · 9 posts · 2 votes
9y
@Chris Mason I'm curious, is buying a home subject to illegal, or just not allowed by the contract. Those are two different things right? Not allowed by the contract does not make subject to illegal right?
Joel
2 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Chris Mason You are REALLY GOOD! In fact, you are better than the Ninth Circuit Court of Appeals. I commend you! Which law school did you graduate from?
https://www.law.cornell.edu/uscode/text/12/1701j-3
U.S. CODE:
(1) the term “due-on-sale clause” means a contract provision which authorizes a lender, AT ITS OPTION, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;
Please note: "AT ITS OPTION"
I've been all the way (took 5 years and $125,000 in legal fees) to the Ninth Circuit on this very issue and Won. Have you?
Don't be so fast to pass judgment before you do your research! And, you are giving out bad and wrong advice on this issue.
4 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Joel Packard Chris Mason is wrong on this issue. Disregard what he says and read my post which has the actual law in it.
0 Reply
Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Jay Hinrichs Apology accepted and no offense taken.
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Hi @Account Closed,
I'm not a lawyer, but good for you for winning your case! I'm sure you had a very good technicality.
Most illegal activities give the victim the option to enforce the law, or not, as they wish. That's not unusual.
I can drive 130 mph in a 55, and a cop can decide not to pull me over. No biggie. Again, not unusual.
I might, however, suggest to you that a real estate transaction wherein you must plan for $125k in legal fees is one where it's worth budgeting for up-front when doing your deal analysis.
Your risk threshold may differ from that of others. Not everyone is out to set a precedent at the 9th Circuit Court of Appeals based on a technicality & be a crusader.
Also, please note, I merely stated that it was a violation of the (presumed) contract for the seller to sign this "subject to" monstrosity. I didn't allege that it broke any contract that the buyer/investor might have signed, which is what you presumably were dealing with, with your $125k speeding ticket (that you somehow use to suggest that reckless driving is a good idea...).
Some people just want to be successful without asking anyone around them to break contracts, break the law, and the like.
1 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Originally posted by @Joel Packard:

@Chris Mason I'm curious, is buying a home subject to illegal, or just not allowed by the contract. Those are two different things right? Not allowed by the contract does not make subject to illegal right?
Joel
Your seller will have typically signed something saying that they will not transfer title over to someone else unless they concurrently pay the outstanding mortgage balance due in full (how most RE ownership transfers occur).
There may be technicalities and loopholes and the like that allow some homeowners & REI to dodge this on technicalities, in some cases.
As a viable "I'm just getting started! What should I do!?" game-plan, I'd suggest not running around and making your business plan be to encourage people to break notarized contracts that they have signed.
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Martin Zagrzejewski
Investor · Pearland, TX · Member since 2013 · 66 posts · 37 votes
9y
Hi @Chris Mason im going to have to side with Ken on this one. The law is very clear in Texas and elsewhere about conveying real estate subject to existing liens. You are talking about due on sale clause. Simply because they used the word may call the loan due confers it is not illegal. To say otherwise is incorrect advise. Besides in my experience with sub2, I have only heard of one person getting a loan called due. If you make payments, there is zero incentive for the bank to call the loan due because they will lose money. The average foreclosure costs a bank 40k. If you haven't tried subject 2, I would suggest more research and talk with an attorney who is familiar with it.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed this is a good back and forth on the subject too debate pro con.
I can see why states would in act this and I can see why some who do want to keep it in play.
you posted the positives for both investor and USUALLY distressed seller.
but lets look at why govmit ( which basically is all about protecting the public whether they are knowledgeable or ignorant to financial documents.
Were sub too breaks down
And its not for the buyer the buyer is in the cat birds seat this is why those that are pro this so strongly take the position for obvious reasons they can control a bunch of real estate without having to actually qualify for a loan all they have to do is talk someone into selling them their property.
Were it falls down is when they go turtle and roll up on their backs.
1. Seller has deed their property away they no longer own it
2. Mortgage and more important for most sellers is this remains on their credit and affects their ability to borrow since the mortgage is still open.
So when you get under capitalized or just plain crooks ( and I am not calling anyone on this thread a crook by any means and don't know their capital strength as well)
But this scheme brings in the less than honest players and the one's will little to no money and a big dream.
So know they have control of the asset.. they then either sell again on a contract for deed or another wrap or another sub too.. to what is usually a buyer who can't get a traditional mortgage.. now some of those buyers could be credit worthy but many to most are NOT.. so you are now setting up sub prime borrowers .. these borrowers fail with alarming rates we know that. So now the original seller who is still on the mortgage and the payments can't be made the guy who did the sandwich and took the big bit and moved on is no help and the seller is in a real jam.. and many times this leads to full blown foreclosure trashing of their credit.. and In Texas particularly a Money judgment against them from the lender as Texas is a dual action state.. along with the possibility of a 1099C.
OR,
Investor buys them sub too its a rental.. renter does not pay and trash's house takes new buyer 3 to 6 months to evict and there is a big fix bill.. all the while investor who ( now this is for those with limited capital ) they can't make 1k a month payments and pay to evict / foreclose and then come up with the money to rehab all over again. these lead to default scenarios and the sub too buyer just walking away.
The sellers generally in these situations are not you or me Ken that have the knowledge and ability to take something to the 9th circuit ( PS I have been there too different matter though but my name is in the books :))... it just becomes a nightmare.
So for this reason I can see states wanting to regulate these transactions.. To keep sellers from doing the worse transaction of their life..
So that's my view point on why what and how this is a bad deal for most sellers
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Joel Packard the due on sale clause is generally referred to in most Deeds of Trust Mortgages or Deed to secure debt ( Georgia document) the Alienation clause.. and there are usually a list of items that a lender at their distraction can use to call a note all due and payable.. Transferring title is one of them.. the others include.. failure to pay property tax's insure the property.. commit waste on the property etc etc.
I have used all of the above to start foreclosure on my borrowers in years past. I have gotten mortgages called that we took sub too.. it happens.. Not with any frequency of course. but it does happen and when it happens if you the sub too buyer cant get a loan because you don't qualify or because you took a sub too with no equity and now a big cash infusion needs to be made etc etc. this is what fubar's sellers.. they get their credit trashed.. bank can refuse payments and there ya go.
I suspect just like folks on this site like to run to lawyers for advice ( and most should) sellers seem to not do it on sub too's one because they are distressed .. and simply do not get all the what can happens explained to them.. if they do go to a lawyer.. I suspect 99% of lawyers in most of these cases representing a seller would tell them not to do the deal...
Or they would want to qualify the sub too buyer as having substantial wherewithal and personal guarantee along with it to make sure their client was not hurt.
so there are simply two sides to this that's all and a little over sight like what happened in the mortgage business would be a good thing in my mind. Just one crooks ruining one persons credit and life is enough to make this needed...
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Account Closed
Business Owner · Madison, WI · Member since 2017 · 79 posts · 59 votes
9y
I have yet to see an attorney comment on the legalities of subject to investing.... I'll wait.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed its probably because its NOT illegal to do.. there are just consequences that can happen and many of those consequences negatively impact the seller.. and of course those buying these are not so keen on explaining it all.. just like wholesalers decieveing sellers IE telling them they are cash buyers when they are not.. they blatanantly lie to the seller.
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Ellis San Jose
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
9y
Originally posted by @Jay Hinrichs:

@Account Closed its probably because its NOT illegal to do.. there are just consequences that can happen and many of those consequences negatively impact the seller.. and of course those buying these are not so keen on explaining it all.. just like wholesalers decieveing sellers IE telling them they are cash buyers when they are not.. they blatanantly lie to the seller.
This is an excellent point. If you purchase a property subject-to, you must ethically disclose the risks to the seller. There is an important distinction between, illegal & a breach of contract (due on sale clause) .
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