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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Ellis San Jose
Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes
9y
Originally posted by @Account Closed:

@Ellis San Jose If you own the property out right you have the right and if it is finance the lender has the final say if they allow a subject to.
If I breach the contract with my lender, they have the right to accelerate the loan &/or foreclose because of that breach. The last thing a so called "free market economy" needs is overbearing short sighted regulations in my opinion. How many people here remember double digit inflation & interest rates? Economies have many cycles & to not have the wisdom to think that it can't or won't happen again is foolish. I just hope this trend of over regulation & legislation get's reevaluated objectively.
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Sean Cassidy
Investor · Brownville, ME · Member since 2017 · 83 posts · 35 votes
9y
Best thread I've ever read.
I've never done a Sub too, I don't think I'd want to either. However, I don't like the idea of regulating them very much. Too much regulation stifles markets, and sub too is a viable (when done correctly) way to save someones butt and make someone else some money.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
Originally posted by @Nick C.:

@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.
OH MY! Sad but so true. Old techniques are STILL being taught regardless of legality. How I wish BP would take action on these nefarious actions.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ellis San Jose those hyper interest markets spawned much of this.. that's when the AITD was invented in CA.. my dad was using them in the early 80s only on the flip side he bought properties with low interest rates and wrapped them with 15 to 18% AITD and supporting notes.. which was going rate in those days.. We even started a company called California wrap :)
I am not for making it absolutely illegal.. I am though for having some over site and mandatory disclosures.. just like we do now when folks buy a home you have a sellers disclosure.. or in CA when you make a loan as a broker you have a private lender disclosure were you have to identify if there is multi bene and if its a wrap.
the risk to the general public from those that are not ready to take on this massive repsonsiblity IE keeping a sellers payments current and not trashing their credit dictates this in my mind.
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Odie Ayaga
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
9y
I think if we just required all parties in a subject-to transaction to read 25% of @Jay Hinrichs posts before signing on the dotted line (has anyone ever actually signed a dotted line?) we'd be fine
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Seems to me, it's the BANKS who should be against this legislation. They already have the right to call in their Loans upon any Title transfers, but under this legislation, they MUST?
Lobbying to have it stopped should be paid by BANKS, rather than Guru-inspired newbies?...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Brent Coombs Ah did not see the must part in this.
I wonder if banks could be behind it.. in that they know rates are rising and they want new loans and not a ton of money out there frozen at 3 to 4% for the next 25 years.. maybe they think if this pass's folks will need new mortgages instead of sub too.... reset them at higher rates....
as things have bounced back in most areas the amount of underwater mortgages should not be too high anyway.. and well an investor is NUTS to buy a underwater property sub too any way.. so protecting the investor from themselves..
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Sharon Carter
OP
Houston, TX · Member since 2015 · 29 posts · 10 votes
9y
Thanks for all the replies - for and against! Everyone should do their OWN due diligence and research whenever they start using a new program or style of purchasing property, whether it be getting a loan, sub2, foreclosure or whatever. I pray those of us that are doing it the RIGHT WAY will be able to continue because I see it as really helping people that have no alternative. Ex.: Mortgage payments increased due to increased insurance & property tax, owner working but accepted job paying much less than they were making @ previous job (24-years), exhausted 401k due to medical bills, etc., and need a break. Instead of allowing mortgage to foreclose on the property we did sub2. This has now increased her credit score so that she will be able to get a better paying job and eventually be able to afford rent, car, etc. - all the things that we enjoy daily. God has blessed you and me and I can only pray that those of us that are doing it the RIGHT WAY and not taking advantage of people will be able to continue. Thank you all again and if you want to support the cause and donate, please do, if not, don't. Be blessed!
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:
@Brent Coombs Ah did not see the must part in this.
I wonder if banks could be behind it.. in that they know rates are rising and they want new loans and not a ton of money out there frozen at 3 to 4% for the next 25 years.. maybe they think if this pass's folks will need new mortgages instead of sub too.... reset them at higher rates....
as things have bounced back in most areas the amount of underwater mortgages should not be too high anyway.. and well an investor is NUTS to buy a underwater property sub too any way.. so protecting the investor from themselves..
Not having seen the specific wording of the proposed bill, I was just using the one-word "must" as a summary of my interpretation of Sharon's "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" summary.
If "must" (pay out mortgage) DOESN'T apply, then what's the bill accomplishing if passed?...
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Kenneth Johnson
Real Estate Investor · Cumming, GA · Member since 2016 · 60 posts · 12 votes
9y
If a Subject To deals goes south because the new buyer stops paying the mortgage, can't the original owner sale it? Or does the new buyer have control of it until it is taken back by the court? I have been interested in these deals because limited capital but have not pursued these deals because of the several warnings I have read about not doing them if you do not have adequate capital. If the home cannot be sold off in the event that the deal goes south, doesn't that mean the house is back in the same spot it started at? If it had other options, it would have used those options in the beginning??
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Kenneth Johnson If the Subject To goes south, the seller can foreclose and get the property back or it can deeded back to the seller "in lieu".
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 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.
@Jay Hinrichs: This is getting tedious. Try reading the code which I've already posted. You're opinion doesn't count when it is settled law. Which law school did you graduate from?
You are just misleading people. Here is the ACTUAL LAW again"
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.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed I get it where is the beef.. its the alienation clause..
its lender prerogative.. no argument there.
AGAIN my position is you have too many guru's probably YOU.. teaching too many undercaplized people ( half of BP audience) this scheme and its highly risky to the seller. I could give a rip about you and other investor my only concern is for sellers. and of course we don't see many distressed sellers post on BP :)
so unless you can post how the SELLER is protected hands down in this scenario then that's another thing and that is why this bill in Texas is probably a good thing PROTECT The seller they could care less about you and other investors.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed OK KEN I get it now I finally checked out your profile and your website your a GURU you charge to teach this stuff.. your credibility is ZERO... your just another long lien of gurus' out to take money from these poor folks who will pay you 12K for your super coaching do one deal and fade away.. that's the reality .. did you not get the memo that BP by and large is anti Guru LOL... good luck selling this crowd.
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Pat Marco
Real Estate Attorney · Manhattan, NY · Member since 2014 · 129 posts · 106 votes
9y
When a lender extends a loan to a borrower they draft specific wording clearly stating that the borrower cannot sell or transfer the property through a lump sum sale or any form of installment payment without paying the lender in full with all accrued interest and any Pre-payment penalties etc The wrap around and the subject to were never legal ways to transact anyway Most sellers doing so like many have said in here are desperate because usually there is no equity - and many buyers doing it are broke but desperate to get in the game Desperate people do desperate things and when one payment is missed and the bank starts investigating the entire structure is unraveled
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Pat Marco and that Pat is where I have come in and cleaned up many a mess. you have guys like this @Account Closed guru teaching this stuff you have buyers with little to no money .. taking title you have sellers who know no better.. tenant or wrap buyer stops paying and unravel is a generous term.
that's my point.. this is just so dangerous to a seller.. that if most sellers consulted council they would be advised not to do this and just face their problems head on.
but again that does not sell guru programs.. like Ken does.. lots of subliminal guru selling on BP.
thanks for chiming in.
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
Originally posted by @Jay Hinrichs:
@Account Closed OK KEN I get it now I finally checked out your profile and your website your a GURU you charge to teach this stuff.. your credibility is ZERO... your just another long lien of gurus' out to take money from these poor folks who will pay you 12K for your super coaching do one deal and fade away.. that's the reality .. did you not get the memo that BP by and large is anti Guru LOL... good luck selling this crowd.
@Jay Hinrichs: That is called a "Straw Man" argument. Say the other person said something they didn't, then tear it down.
Argue with the LAW not with me. I didn't write the law nor did I interpret it for the Ninth Circuit. They are some pretty smart and LIBERAL people, If they thought it unlawful they would find a way to over turn it, but they didn't do either. But, it IS the law. Passed by Congress. And watch who's character you defame, It's the sign of a man who has already lost and It can have some very unpleasant legal consequences.
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
Originally posted by @Pat Marco:

When a lender extends a loan to a borrower they draft specific wording clearly stating that the borrower cannot sell or transfer the property through a lump sum sale or any form of installment payment without paying the lender in full with all accrued interest and any Pre-payment penalties etc
The wrap around and the subject to were never legal ways to transact anyway
Most sellers doing so like many have said in here are desperate because usually there is no equity - and many buyers doing it are broke but desperate to get in the game
Desperate people do desperate things and when one payment is missed and the bank starts investigating the entire structure is unraveled
@Pat Marco I'm not buying it Pat.
You are just misleading people. Here is the ACTUAL LAW again"
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 reference "The Garn-St Germain Act"
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed again I am not arguing the fact that transferring ownership of property subject too an existing mortgage is illegal.. in fact it is not.. and again your not hearing my point of view that its dangerous for a seller .. you simply refuse to acknowledge the risk to the seller. and point back to the ninth circuit.. If your not selling coaching then I think you should change your website.. there is nothing defamatory about talking about your coaching services .. right? or are you saying your website is out of date and you do not sell coaching on this subject..
it sounds like if you spent 125k large to take what ever you took to the ninth circuit your probably not doing that out of some sort of pride or ethical stance. I have to assume there was a business reason to spend that kind of money.
And again I will reiterate I have personally done well over 100 a sub too s in my career this is not the point.. the point is we are and where financially capable of taking them on.. most folks that do this are not.. its OK if it all works perfectly but what happens when the renter or lease option tenant or contract for deed flakes out and holes up in the property and does major damage.. that's the issue many to most of these folks simply do not have the wherewithal to protect the seller who sold them the property. Along with the out and out crooks that get into title take rent never pay the underlying and move on and do it repeatedly and you KNOW and I KNOW you know this is common in this scheme..
so can you address my points ? I am sure if any one is following this would like to know how you set these up.. or do they have to pay 12k to get that info LOL.. :)
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
I have had my say on the matter. Enough said.
The law, and all of the case law speaks for itself.
Now, I'm off to make lots & lots of more money doing Subject To's helping people who would otherwise have to bring money into closing, or can't wait the number of months listing in the MLS or who don't like people traipsing through their houses at odd times, or in their bathrooms pawing through their medicines, or can't afford to fix up the place to sell it, or who otherwise need to sell but don't want to list in the MLS . Since there is no Real Estate Agent, (it's done through escrow with an attorney) they save on average $12,000 to $18,000 on Real Estate Agent fees doing a Subject To with me. ;-)
By the way, I offer full price to the seller.
I wonder if "Fix & Flippers" and "Buy & Hold" and Hard Money Lenders and "I don't do Hard Money Loans anymore, types" think about it when they rip off the people who can least afford it by giving low ball offers to people in desperate situations. That equity you are taking is theirs.
And those high interest rates and points from Hard Money Lenders? That, my friend is called usury. That is the big part of the scam.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed I love you man... just defame me right back I guess we are even.
anyone buying real estate sub too that has no equity is a fools errand.. LOL
keep drinking and selling the cool aid !!!
And for the record I am not desperate .... but I am not a guru I don't sell how to.
I just give it away free.. but I have thought about it many times. and I know many gurus personally
but they don't come on BP and hide what they do.. matter of fact they never come on BP because they are not desperate to find newbies to buy into their coaching.
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Account Closed
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Jay Hinrichs Good debate!
It's fun to throw around concepts and put challenges out there that stir things up a little.
I look forward to doing so again on the next hot topic.
By the way, I spent the money on the case because my attorney believed it had the potential to "chill" real estate in ways that would limit free transfer of property. I won a large amount of money and I had my attorney's fees paid by the other side (a bank). I almost got a legal education out of the process. ;-)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed one last word on this .. then I have to go pack as I head off to my east coast markets.
I ran into a group 6 indivduals that drank this cool laid of paying market for properties so seller would sell to them sub too.. save them commission just like you stated.
so they then lease optioned or sold on contract the homes once they title to them.. well the homes had little to no equity. but hey would make about 200 on the delta between what a sub prime borrower and the sellers mortgage all in was.
well they did about 40 of these .. so it was going good making 8k a month.. but then the first one failed.. renter or buyer quit paying.. then the next one then the next one.. to the point they were negative cash flow.. and since they never really made any money on the homes and they were not very well capitalize to begin with .. it only took about 6 months and they were in trouble. they could not pay the senior debt.. so they start defaulting.. those owners are screaming like banshee's because its affecting their credit.. threats of suits .. come.
I roll in and bail them out of pretty much this whole mess.. by negotiating with the owners paying off some that ACTUALLY had equity etc etc. but this did not keep the sellers form filing complaints at the AG s office they go there get a cease and desist and a big fine.. ( lucky that was all it was.) Many sellers lost huge dollars to these kids... but then they were listening to some guru who taught them the strategy which is not all that complicated or bright.
When you have no equity in these deals and they go bad its just a foolish thing to do.
so there ya go...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Account Closed My trip to the ninth circuit was as a co defendant I would not settle it was a civil Rico. big developer from china.. and me a little 30 year old RE broker .. caught in the middle of the big dogs.
the plantiffs attorney got the largest penalty for acting in bad faith in CA history... so they took it to the ninth circuit and lost.. so my name is there as a co defendant even though I really had nothing to do with it I was let out along the way..
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Tyler Haskell
Investor · Antelope, CA · Member since 2014 · 59 posts · 21 votes
9y
Great thread on Sub-To. (Until the flame war started!) I had a chance to acquire a sub to property and chose not to, what a fool I must be for doing that right. Aside from Jay's points about not having deep pockets to cover if something went wrong, I really believe it is misleading to hear people say a bank has "no incentive" to call the due on sale clause. Let's think about the banks motivations for a minute (and I am no expert this is just my opinion). 2010-now banks had so many bad mortgages, foreclosures and other disasters to clean up tracking down sub to transactions was not a priority. Plus interest rates went DOWN and stayed down. Now in 2017 and beyond, interest rates are going UP. So why would a bank call the due on sale clause.....because they can likely get a 3.25% mortgage and convert it up to a 4.5% mortgage and soon higher than that. Banks like money last I checked, so calling due an old mortgage with a high interest rate to swap to a 3.25% makes zero sense, but now we will see interest rates rising and that will be reversed. This is only my lowly opinion as to why I believe banks will begin actively hunting down and calling due sub to deals with more frequency. Would love to hear any holes in my logic and counterpoints!
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