Innovative Strategies

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Alan L Donald
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"Subject To" Purchases

Alan L Donald
Posted Aug 2 2022, 07:57

What happens with taxes and insurance in a "subject to" purchase? I assume the lender mostly doesn't care who the house belongs to, as long as the mortgage is being paid? 

What about the escrowing of taxes (new rate) and insurance (new insured). How do you deal with those without triggering the "due on sale" clause for the existing mortgage?
Thanks,

Alan

Charleston, South Carolina

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Andrew Garcia
  • Lender
  • Silver Spring, MD
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Andrew Garcia
  • Lender
  • Silver Spring, MD
Replied Aug 2 2022, 13:00

Hi @Alan L Donald, most mortgages have taxes and insurance escrowed so it would continue to be included in the mortgage payment.

The new policy in your name would likely raise a red flag, however.

I am not sure how the sub2 crowd get around that.

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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
Replied Aug 3 2022, 09:54

I have a free training doc that comes with all doc examples and process to close and post-close a sub-to. I like helping investors not screw up the best deal in REI buy and hold!!!

There's solutions for everything but you need to be educated AND have the docs to get each step done correctly.

#1 banks do NOT want real estate! They are happy with getting paid, so pay them. I set up auto pay with the bank using my POA to manage the mortgage. Banks are used to POAs and estate managers taking over. Its language they are used to "hi I'm the manager for the estate of Mr Smith, I have a POA I need to send in to be on file. Where do I send it?" ...

#2 get a 2nd POA to manage the insurance policy. Contact the agent, say I'm the new estate manager and need to cancel. Problem is the unused portion refund check will be made out to the borrower/seller. No solution other then to mail them a surprise "thank you" check. If you are on good terms offer to split it. Same problem with annual escrow re-balancing and overages. Those checks are in the borrowers name. But mailed to ME since I'm the manager via the POA and I change the mailing address for the loan. I enjoy ad-hoc mailing $$$ to the seller, who sold due to hard times etc. They can use the funds. Worst case I've had, the borrower has died. I toss those checks. I've tried to get the bank escrow dept to cancel the check and apply to next year. Some success some not.

#3, forgot to answer the OP's qquestion;  yes get NEW insurance for a rental with your favorite carrier, named insured is how you hold title.  I strongly suggest you get my doc and close in a land trust.  The named insured is the landtrust.  AND Additional party is the seller same name as is on the canceled home owners policy.   Lender is the same bank etc.  Then have your agent fax the new policy to the bank right after closing.  This triggers the insurance refund issue mentioned above..   

It all works smoothly.  Only a very very rare small local bank with one location and not very smart raise any flags.  The major lenders all know land trusts and POAs and "I'm the new estate manager" no problems.

Connect with me, then PM, I'll send my training doc.

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Robin Freeman
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Robin Freeman
Replied Sep 14 2022, 20:19

@Curt Smith  I would be interested in your free training doc and examples on how to close a sub-to.  Thanks

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Crady Seymour
  • Real Estate Agent
  • Charleston, SC
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Crady Seymour
  • Real Estate Agent
  • Charleston, SC
Replied Sep 15 2022, 07:00
Quote from @Alan L Donald:

What happens with taxes and insurance in a "subject to" purchase? I assume the lender mostly doesn't care who the house belongs to, as long as the mortgage is being paid? 

What about the escrowing of taxes (new rate) and insurance (new insured). How do you deal with those without triggering the "due on sale" clause for the existing mortgage?
Thanks,

Alan

Alan- there's a great podcast on creative financing with Pace Morby. In it he talks about two ways to handle the Due on Sale Clause. You can actually purchase insurance for that, but he has another creative way he learned from a banker. It's called 300 Doors ALL Through Creative Financing with Pace Morby.

;list=PLAePTb0s5IOXEjrpFYKm3T23QbrR7QuYu&index=3

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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
Replied Sep 16 2022, 06:37
Quote from @Robin Freeman:

@Curt Smith  I would be interested in your free training doc and examples on how to close a sub-to.  Thanks


 I see I forgot to add above;  connect with me, then PM, then BP lets be send back a file. 

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Guillermo Vladimir Robles
  • New to Real Estate
  • Los Angeles, Ca
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Guillermo Vladimir Robles
  • New to Real Estate
  • Los Angeles, Ca
Replied Sep 18 2022, 19:40
Quote from @Curt Smith:
Quote from @Robin Freeman:

@Curt Smith  I would be interested in your free training doc and examples on how to close a sub-to.  Thanks


 I see I forgot to add above;  connect with me, then PM, then BP lets be send back a file.