Section Two Financing (Pace Morby)

[Brady Ascheman]

Hi everyone, I recently watched the BiggerPockets Podcast (300 Doors ALL Through Creative Financing w/ Pace Morby) I'm on my 5 time watching it trying to comprehend everything that Pace does. I was just curious if anyone on here has bought using section two and taken over the seller mortgage before. Some questions that come to mind. When you do this do you actually pay the bank the mortgage amount or is that still the responsibility of the seller of the home? If the case is that you pay directly to the bank wouldn't the bank find out every single time you did this and call due on sale? If the seller of the home still is the one that pays the mortgage and you just pay the seller then wouldn't you have to worry about the seller not paying the mortgage payments and then the bank would foreclose? Comments would be much appreciated if anyone has experience in this field please connect with me I would love to talk more personally with someone about this. Thanks so much 

[Jason Wray]

Brady,

Have you though about just going the traditonal route and using a first time home buyer program100% financing with a DPA or FHA with 3.5% down to acquire the first proprerty. You can transition the the property into a rental in 6 months once you have "six (6) months title seasoning" where you could reifnance the FHA into conventional while taking out cash.

Nothing wrong with creative financing but your looking at a lot of work and a lot of digging to find the perfect person where those scenarios will work for the seller.  

[Brady Ascheman]

Hey Jason I have thought about doing it that way. Only stipulation I have is then I would have to live in it for a while and some of the properties I’m looking at buying aren’t close enough to me to do that.

[Doug Pretorius]

@Brady Ascheman when taking over payments I've always paid the bank directly. And no in 20 years the bank has never called a loan due. I've physically gone to the seller's bank with the seller, sat down with the manager and told them I'm taking over the payments, and the bank has still not called the loan due.

As an alternative to paying the bank yourself you can use a loan servicing company. You can set it up so they will take the money from your tenant, pay you, pay the bank, pay your insurance, taxes etc.

Never, ever, let the seller take your money and trust that they're going to pay the mortgage. Most of the sellers who agree to a payment takeover deal are horrible with their money. Once they leave the house and are no longer emotionally tied to it, the second they start having new money problems they will spend your money on something else forgetting that the bank is going to foreclose if they do that.

[Brady Ascheman]

@Doug Pretorius Thanks for your comment Doug. Was just curious when you take over the payments and you bring in the person to the bank. Will the bank get all your info look at your DTI and all other requirements of you before they allow you to take over payments?

[Doug Pretorius]

@Brady Ascheman No, that would mean I'd be going through the bank's qualification process which is the same as getting my own mortgage. The whole point of creative financing is not to have to qualify for loans.

The bank doesn't care where the money comes from. They only care that the person on the mortgage is still ultimately responsible.

[Lexey Vezzoso]

Hey Brady!

My husband and I have used creative finance for all of our homes except our primary. 

You don't pay the bank, title will typically set up servicing through a servicing company who handles the payments to the seller. It took us a while to understand this but once you can grasp the concept it's a pretty big game changer. 

You could always look into joining Pace's mentorship "SubTo". We are part of that and it's amazing!

Good Luck!

-Lexey

[Shannon Glanton]

Thank you so much for posting your questions, the answers you've received have helped me as well. I was mind blown listening to the Podcast episode and am now considering taking the course.

[Eliott Elias]

You (buyer) gets login information from seller and pay on their behalf every month. You get all security questions and back up emails to make sure there are no issues making the payments. If bank finds out there are ways to avoid due on sale, deed back to original owners name and then deed back to you. The seller may not any any incentive to do this down the road 

[Don Konipol]

Quote from @Brady Ascheman:

Hi everyone, I recently watched the BiggerPockets Podcast (300 Doors ALL Through Creative Financing w/ Pace Morby) I'm on my 5 time watching it trying to comprehend everything that Pace does. I was just curious if anyone on here has bought using section two and taken over the seller mortgage before. Some questions that come to mind. When you do this do you actually pay the bank the mortgage amount or is that still the responsibility of the seller of the home? If the case is that you pay directly to the bank wouldn't the bank find out every single time you did this and call due on sale? If the seller of the home still is the one that pays the mortgage and you just pay the seller then wouldn't you have to worry about the seller not paying the mortgage payments and then the bank would foreclose? Comments would be much appreciated if anyone has experience in this field please connect with me I would love to talk more personally with someone about this. Thanks so much 

Up until now, with generally falling interest rates (from 17% in 1981 to 2.5% in 2021) lenders had no incentive to call a loan due for violation of the due on sale clause.  In fact, they had an incentive NOT to enforce the clause.  If for example rates were at 4%, and they enforced a due on sale clause for a loan at 6%, they would lose a 6% loan and end up relending that money at 4%.

With interest rates going up lenders now have an incentive to enforce the due on sale clause for loans at interest rates below what they can reinvest the loan proceeds at.  So if an existing loan is at 3%, and they can invest the proceeds at 6%, there’s a strong financial incentive to call the loan for due on sale violation.

Additionally, the software now exists making it much cheaper and easier for lenders to scan property records to match warranty deed transfers with loan portfolio.  This hasn’t been anywhere near as easy in the recent past.It

 It’s dangerous to assume with these changes that lenders will be as benign about enforcing warranty deed transfers in the future as they were in the past

I will still engage in “subject to “ transactions when the opportunities arrive.  But I will have in place a “doomsday scenario” plan of action for if a lender decides to call the note due. 

[Jose Ramirez]

Looking to find leverage to get money for down payment using business credit or what you recommend