Can a “Subject to” Transaction be done SAFELY?

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Can a “Subject to” Transaction be done SAFELY?

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Can a “subject to” transaction be done safely? 

There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage 

The positives for the seller are 

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers 

3 -possibly obtain a higher price/ quicker sale 

4 - can utilize a wrap to potentially earn the “differential” on interest rate 

5 -May be able to save the Realtors commission


All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

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T. Alan CeshkerPro Member
Attorney · 3409 Executive Center Drive Ste 110 Austin, Texas 78731 · Member since 2020 · 99 posts · 92 votes
1y
Quote from @Don Konipol:

Can a “subject to” transaction be done safely? 

There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage 

The positives for the seller are 

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers 

3 -possibly obtain a higher price/ quicker sale 

4 - can utilize a wrap to potentially earn the “differential” on interest rate 

5 -May be able to save the Realtors commission


All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 


We have closed well over 10,000 wraps in our law and title office and have not had 1 go back to the bank because of a due on sale issue.  I have also closed dozens myself as the buyer and seller.  It is my primary method of investing.

If structured and closed correctly, they work.  You do have to be ready to deal with the due on sale clause issue - but this is doable.

As a seller, you need to be ready to deal with a buyer default -- which I have had to do.

Lastly, you cannot just close these anywhere with any contracting.  The key is to have the foundation of the transaction solid before embarking on this. 

Stay safe out there

Alan
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.
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    JLH Capital Partners51 Review
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    Lol, they are doing "payment plans" for people...... Monthly payments. 

     I'll randomly get crap offers on my properties from idiots in his programs or whatever it is he's calling it. There are people who can't put two sentence together and he just let's um use a screen shot of one of his bank accounts. It's pretty weird. See below.


    But they paid 8k to be in the club.. I get the same BS its a joke.

    Keep in mind Ken M sells the same program OR he did for 15k each client  and I bet he was picking up 2 to 5 clients off of BP per month when he was subliminally advertising himself as the sub to guys.. I mean if you have specialized knowledge its fair game to charge for it.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @Joe S.:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don, I think it's a smaller number of people that actually do Sub 2 deals than folks might think. Especially from the Morby camp. Sub2 has been around a lot longer than Pace as a season pro like your yourself can confirm. I do not follow his content so I could be mistaken, but people saying that his students are going to have problems is not the same as saying his students are having problems. Unfortunately for some when they think Sub2 they think Pace Morby, which could be quite limiting.

    Kind of like when somebody says fish dinner and the only thing they can think of is Captain D’s they would probably have a bad conception of what fish taste like. 

    Have you eaten at Captain D’s lately. 😖


    The # when last discussed was just under 2% of all "student's" actually ever do "a" "deal". 

    Don't ask me how I know, I won't publicly disclose that but if BP want's to fact check me privately I will readily provide knowledge confirmation. 

    2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    I'm sure the guy is making money, but pulling in the kind of numbers Armando was pulling in back in the early 2,000's, no way no how. Armando was a legit mainstream household name with his show. Guy was like Property Brother's big. Today the media landscape is too saturated with all that stuff. It's been done by everyone and their brother and his following is way too small to be able to sell that many $8,000 courses to people who need a loan for an EMD.
    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    For what it's worth I can second/confirm all Jay is saying here. 

    Back in the day of my early start I got in "on tour" with Nouveau Riche. 

    Was a total weird happenstance of things, I got recruited on the spot when I attended as an unsuspecting "mark". 

    Everything was a very methodical well thought out progressive sales pitch. 

    It blew my mind the people at end all but rushing the back desk to signup for the $24k full package. And even then, there was upsells. Oh the upsells never ended, ever. Every everything had upsells along the way. 

    You never could peg who'd pay what. 

    At start of shows we would be making bet's as to which "mark" would pay what. 

    People would no joke sit there and pull out a stack of credit cards putting this much on this one, that much on that one, all to get up to the total. 

    It was at one of these where I met the person who would later become my private $ guy. He didn't buy anything, he saw straight through it all, and called it out. And I was honest with him, that's what bought me the "why are you here, doing this, you don't belong here. Let's have coffee next Tuesday" and the rest is history. 

    As I got informed, I started to feel slimy. Hence my disgust on it all to this day. 

    BUT, in a way I can't totally fault them. The "Guru" really was a successful investor and he did dump solid info. There was no BS with any of that, it was legit. 

    Charging the nose bleed prices.... Well, people bought it and really price is decided by the buyers isn't it. Is Porsche, Ferrari or BMW i9 a scam because they do the same, charge astronomical for there items. 

    It was the people chasing rainbows, who were scrapping together the last dimes to buy what they built in there mind as a sure thing, a way out of there situation..... That weighed on me. Still does. 

    We frame it as peoples freedom to make there own decisions however good or poor. They used to say what's the difference between someone choosing to eat bacon triple cheese burgers every day and getting a heart attack, do you go stop them and say no eat a carrot "fatty". No. 

    But still, nobody is saying bacon triple cheese burgers are health food and it felt like we kind of were. 

    End of day it was just selling dreams is what I concluded, and when I came to that conclusion, I left. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    I'm sure the guy is making money, but pulling in the kind of numbers Armando was pulling in back in the early 2,000's, no way no how. Armando was a legit mainstream household name with his show. Guy was like Property Brother's big. Today the media landscape is too saturated with all that stuff. It's been done by everyone and their brother and his following is way too small to be able to sell that many $8,000 courses to people who need a loan for an EMD.

    well we will never know for sure..  Nick V was not a household name either he was Armando's right hand man until Armando got out of it and Nick carried it forward and NIck made himself at least 5 to 7 mil a year for about 5 years.. he did a nice job though with his events.. But its a bizz.. Nick did buy and own a lot of RE though.. I funded a bunch for him in Orlando and Charleston SC he is the who introduced me to that market.  And him and Armando killed it for their investor students in Vegas I mean killed it.. No one wants to talk about how well these students do.. But I was funding these houses his students were buying for 75 to 100k each Armando and his crew would do the typical tk profits of 15 to 20k each house.. PLUS the money the folks paid to go to the seminar.. those houses today are all 300k plus.. same with Orlando I did at least 200 fundigns for their students there all under 100k per house and those have more than doubled.. but no one gets on BP to say hey my guru put me into a house that went up double or more :)  
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    2Reply
  • Gavin SoutoPro Member
    Investor · NY · Member since 2024 · 11 posts · 3 votes
    1y

    Yes

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    I'm sure the guy is making money, but pulling in the kind of numbers Armando was pulling in back in the early 2,000's, no way no how. Armando was a legit mainstream household name with his show. Guy was like Property Brother's big. Today the media landscape is too saturated with all that stuff. It's been done by everyone and their brother and his following is way too small to be able to sell that many $8,000 courses to people who need a loan for an EMD.

     This https://thestrive.co/pace-morby-net-worth/ jumps into trying to sort out his actual income and net worth but even then, it's a big question mark. 

    Given his history prior to all this, namely the ugly stuff in his history, I don't think there will ever be full clarity of it all because I am certain he is laser focused on obfuscating it as much as possible. 

    And if in his shoes, yup, I'd do the exact same. 

    Keep in mind James that if you made a "How-To-Sec8" success program, sold it for just $2,500..... You'd only have to sell 40k of those to hit $100million in gross sales. 

    There is more then 1.3million sec8 rental units is US. That's selling a package to just 3% of units out there. 

    Make it $5k and add a "monthly payment plan" now were talking only 20k sales to hit $100milliion..... 

    Fruit for thought. 

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    1y
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    1y
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    I'm sure the guy is making money, but pulling in the kind of numbers Armando was pulling in back in the early 2,000's, no way no how. Armando was a legit mainstream household name with his show. Guy was like Property Brother's big. Today the media landscape is too saturated with all that stuff. It's been done by everyone and their brother and his following is way too small to be able to sell that many $8,000 courses to people who need a loan for an EMD.

     This https://thestrive.co/pace-morby-net-worth/ jumps into trying to sort out his actual income and net worth but even then, it's a big question mark. 

    Given his history prior to all this, namely the ugly stuff in his history, I don't think there will ever be full clarity of it all because I am certain he is laser focused on obfuscating it as much as possible. 

    And if in his shoes, yup, I'd do the exact same. 

    Keep in mind James that if you made a "How-To-Sec8" success program, sold it for just $2,500..... You'd only have to sell 40k of those to hit $100million in gross sales. 

    There is more then 1.3million sec8 rental units is US. That's selling a package to just 3% of units out there. 

    Make it $5k and add a "monthly payment plan" now were talking only 20k sales to hit $100milliion..... 

    Fruit for thought. 

     Yea but he ain't selling 40,000 $2,500 courses man. He's got like 300,000 YouTube subs. When you're selling paid info you're lucky to get 1/10th of a % of what people are gonna consume for free.  

    And to be clear, I don't have any issue with people selling info. I just think the info he sells sucks and do not think he's made anywhere near $50M or $100M selling it.

    1Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 723 votes
    1y
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    Lol, they are doing "payment plans" for people...... Monthly payments. 

     I'll randomly get crap offers on my properties from idiots in his programs or whatever it is he's calling it. There are people who can't put two sentence together and he just let's um use a screen shot of one of his bank accounts. It's pretty weird. See below.


     I have probably had a dozen or so people since the new year hit me up who have had problems with his people. Very few are educated. Maybe not even that intelligent. A lot of basement dwellers. 

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @Joe S.:
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

    All this I should preface with "if done correctly and legally which is only way i do them" because there is weird janky ones out there. 

    As I speak to I have full closing on them, an attorney does a review and completes the C4D. 

    Heirs and or assigns is included into it, and there is clause in it covering the "what-if" scenarios such as what-if seller is hit by a bus etc.. 

    It's a lot of paperwork but what correctly completed transaction isn't, right. It's always a signing marathon. 

    And while it all sounds like a lot, which it is, it's also a lot of repetitive standardized templated stuff. We don't draft each one from 0, it's all from fill in the blank templates that get reviewed and updated annually as the laws adjust and update. 

    I did forget 1 additional important piece we use is a disclosure that buyer and seller received and reviewed the "all about contract for deeds and seller financing" packet. Which is exactly as it sounds, it's a pamphlet that is everything about seller financing and contract for deed written in a way for a 6th grader to understand and comprehend it all. 

    I am really shocked any jurisdiction out there would block or ban them. They've been around a really long time, tons of case law surrounding. They specifically do NOT alienate mortgage and deed. 

    I've done a lot of these. And most times I personally make the connection with the bank holding the mortgage, communicate the transaction of intent and ask if any particulars from them on it. Every time it's the same thing, they just want a legal closing and all done on legal standard no janky stuff contracts. And my closers also communicate with the lender holding the mortgage. Because we confirm for closing that everything is as seller states, no default or anything janky. 

    Every one has had the thumbs up.

    I don't do things janky. I have an in-house appraiser who was an MAI appraiser, and a County assessor, now a CFO at a Private Lending institute where the CEO is a former FDIC regulator. (shes pt as I don't need a ft appraiser just a good second set of eyes as needed) I am the definition of straight laced and surrounded by such. 

    Hey, as I posted I am 100% open to finding I am wrong on this, I want to know if I am missing something on SubTo but as of yet nobody has ever presented me any evidence to that. So I will keep to me C4D's that get the job done, legally, well received, no DOS fears, just a dang good tool for the job right.

    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    ya I beg to differ Jim.. I worked with Armando Montelongo and Nick Vertucci and rich dad poor dad .. these guys made MILLIONS and I am very confident that Pace has made that kind of money Keep in mind he is not selling houses he is just selling information and subscriptions to his club.. Not defending him or his message .. But I know what kind of money is made in that business being a back end vendor and personal friends with  Nick and others in the industry I have also been to 2 of the different fulfillment companies in Utah These guys make so much money I know you probably dont beleive it.. But one of them had about 150 callers on their floor of their office and the other had about 600 employees.. Plus a 30 million dollar jet you dont buy those on CC and BS.  

    its a fact those buying into Paces club for the 8 to 10k 90% will do nothing but Pace has retained the payments.. 

    Also Rich Dad made bank I was a vendor for a few years at their monthly seminars were 100 or so investors paid 40k each to be there and that was monthly.. Now granted the cost to get the butts in the seats for the in person events was about 50% of revenue.. by the time you advertise do the first freebie event then then the 3 day work shop.. 

    At Armondos and Nicks events which were 8 to 10 times a year they would have 500 folks which accounted to about 200 paying clients each at 40k.. do the math.. And then at the event they upsold them other educations and once they sold everything they could sell.. The students would come to the back of the room to buy rentals  and thats were I was at.. I would provide financing of the BRRR for their rentals.. SO we would make 25 to 40 sales in one day 8 to 10 times a month.. It was pretty wild.. Met a lot of interesting folks over the years. 

    Not sure if Pace does big events like this but he certainly sells his info and his timing was perfect for SUB to  rates rose and it was a perfect pitch for him at the time.
    Just like when I started in RE in 75 by 79 to 90 when rates sky rockets sub to or owner finance or wraps of our properties were 80% or more of the transactions.. One year we did 800 transactions this was buying our inventory and then selling so 400 properties.. we were in the land business this was all land.. And a ton of fun in the day.

    I'm sure the guy is making money, but pulling in the kind of numbers Armando was pulling in back in the early 2,000's, no way no how. Armando was a legit mainstream household name with his show. Guy was like Property Brother's big. Today the media landscape is too saturated with all that stuff. It's been done by everyone and their brother and his following is way too small to be able to sell that many $8,000 courses to people who need a loan for an EMD.

     This https://thestrive.co/pace-morby-net-worth/ jumps into trying to sort out his actual income and net worth but even then, it's a big question mark. 

    Given his history prior to all this, namely the ugly stuff in his history, I don't think there will ever be full clarity of it all because I am certain he is laser focused on obfuscating it as much as possible. 

    And if in his shoes, yup, I'd do the exact same. 

    Keep in mind James that if you made a "How-To-Sec8" success program, sold it for just $2,500..... You'd only have to sell 40k of those to hit $100million in gross sales. 

    There is more then 1.3million sec8 rental units is US. That's selling a package to just 3% of units out there. 

    Make it $5k and add a "monthly payment plan" now were talking only 20k sales to hit $100milliion..... 

    Fruit for thought. 

     Yea but he ain't selling 40,000 $2,500 courses man. He's got like 300,000 YouTube subs. When you're selling paid info you're lucky to get 1/10th of a % of what people are gonna consume for free.  

    And to be clear, I don't have any issue with people selling info. I just think the info he sells sucks and do not think he's made anywhere near $50M or $100M selling it.


    Hey, I am right there in lock-step with ya Brotha. 

    Only place were not in synch is I shrug the shoulders and say "meah, IDK, maybe there is that many idiot's out there". 

    6 months ago he posted that there is 13,000 members.... Now i think I can trust what he says about as much as a politician so IDK. But maybe. 

    I mean hell, look around the world today. I saw a post today of a chick freaking out how she got reported to welfare and is pist there cutting here benefits now demanding she sell her 2024 BMW and until does that her $4kmnth food stamps went to $88 and her sec8 requires she pay 90%, how dare them stop her mnthly cash assistance, and she was going on about how dare them, how dare them demand her report her income and not get her "government check"...... 

    There is a whole lot of really dumb entitled people out there today. A scary #. 

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @Joe S.:
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

     When I ask "Professor Google" about this it says C4D is NOT illegal in TX, just strictly regulated. Because it can be predatory. Which yeah, it totally could be so makes sense. 

    And in the little bit of looking I did, it seems it's all rather simple standard stuff. At least by my take. Thinks that basically read to don't use C4D to F-people. 

    So yeah, dig deeper into that, looks that is IS an option for ya. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @James Hamling:
    Quote from @Joe S.:
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

     When I ask "Professor Google" about this it says C4D is NOT illegal in TX, just strictly regulated. Because it can be predatory. Which yeah, it totally could be so makes sense. 

    And in the little bit of looking I did, it seems it's all rather simple standard stuff. At least by my take. Thinks that basically read to don't use C4D to F-people. 

    So yeah, dig deeper into that, looks that is IS an option for ya. 


    Jim  not following here I know of course what a C4D is was super common in Or and WA in the day.. but if you have an already existing mortgage and you are not retiring it what does the C4D do for you than a wrap or All inclusive Deed of trust .  C4D is just another DT or Mort the only difference is title does not transfer but you still have to foreclosue it out if it defaults ???

    Can you explain the mechanics.
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    1Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @James Hamling:
    Quote from @Joe S.:
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

     When I ask "Professor Google" about this it says C4D is NOT illegal in TX, just strictly regulated. Because it can be predatory. Which yeah, it totally could be so makes sense. 

    And in the little bit of looking I did, it seems it's all rather simple standard stuff. At least by my take. Thinks that basically read to don't use C4D to F-people. 

    So yeah, dig deeper into that, looks that is IS an option for ya. 


    Jim  not following here I know of course what a C4D is was super common in Or and WA in the day.. but if you have an already existing mortgage and you are not retiring it what does the C4D do for you than a wrap or All inclusive Deed of trust .  C4D is just another DT or Mort the only difference is title does not transfer but you still have to foreclosue it out if it defaults ???

    Can you explain the mechanics.

    I think in majority part it's really about simplicity. 

    With just an hour or so of conversation people readily understand and grasp all the details and facets of C4D, be it buyer or sellers. 

    The process of processing one and closing is also rather simple and streamlined. 

    All the various questions of "what if this, what if that" are readily answered, clearly stated, known and comprehended by all parties. 

    We have to keep in mind that these are not savvy persons most times, there blue collar average every day people, complexity is complex. And complex things are scarry in terms of a transaction the size of a home. 

    Those other options exist but there even far less known, much harder to grasp for people, and when people ask around on it many say "oh yeah, contract for deed, oh yeah I've heard of that before my parents/grandparents did...." and that is a very reassuring thing for people to hear it's known and been long experienced by others from "back in the day". 

    If go full-Monty on a default, yeah would have to follow that but at least here in MN it is a simplified process. It does not carry the exact same full extent for foreclosure as say Wells Fargo with a conforming mortgage has to go through. There is no 6mnth right of recission. Because all these things for default are in the contract and it's not a default and foreclosure on a mortgage, it's on a contract FOR a deed, not a mortgage instrument itself. 

    The law views it more like a delayed closing than a mortgage note. If that makes sense. 

    In all the years I've dealt with these I have never personally had one gone that road of default. And I've only known 1 that all but did. In that one, my friend filled the legal paperwork and got all that going and in 11th hour the buyer surrendered property back, vacated and paid up all outstanding monies, cancelling the contract mutually. And in that one, my friend did it to himself, he took a $5k down payment on a flipping duplex. Security deposits were more then $5k. So yeah, he set that one up for failure from get-go. 

    Generally speaking the #1 "problem" I've seen is near end of term buyers get approved for mortgage, approved for a lot more then what they need, start looking at home on the market at that higher approval level, then say they changed their mind and bought a different place so asking if seller would just donate back the $ they paid on this one. 

    Which is a no, a solid no. And they move on. Never had a 1 go to court or anything like that. They accept it as a cost of there decision. 

    The mechanics here in MN on default is actually a lot more like the process for a tenant who's in default and getting them out. Which if a tenant fights, can be a heck of a process. I actually have seen harder longer times to get a tenant out for default than on C4D. 

    Again, this is all with the preface of a C4D done correctly and legally. 

    0Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    Lol, they are doing "payment plans" for people...... Monthly payments. 

     I'll randomly get crap offers on my properties from idiots in his programs or whatever it is he's calling it. There are people who can't put two sentence together and he just let's um use a screen shot of one of his bank accounts. It's pretty weird. See below.


    But they paid 8k to be in the club.. I get the same BS its a joke.

    Keep in mind Ken M sells the same program OR he did for 15k each client  and I bet he was picking up 2 to 5 clients off of BP per month when he was subliminally advertising himself as the sub to guys.. I mean if you have specialized knowledge its fair game to charge for it.

    .

    PuuuLEASE, it is far from the "same" program". No purchasing a property without getting equity, no borrowing to do the EMD, no foreclosure schemes, always full disclosures, only in decent neighborhoods and always recording the deeds. I'm not trying to hide anything the way Morby does.

    "subliminally" good word by the way.

    May I state for the record, I only work with guys who are accredited or close to accredited, have substantial reserves, who have a steady income outside of real estate and who want to stay out of trouble. It's a whole lot less to worry about that way.

    And, I make more doing my properties than I do on my mentoring. ;-)

    0Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    .

    @James Hamling: Some of us use sarcasm to make a joke. Sorry you just don't get it. You seem to be reactionary rather than thoughtful. Where ever have I stated SubTo benefits the seller more than other options? I haven't. But, it does benefit the buyer.

    My comment: "Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)"

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @James Hamling:
    Quote from @Joe S.:
    Quote from @James Hamling:
    Quote from @Ken M.:
    Quote from @James Hamling:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

    In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

    And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

    So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

    Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

    So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

    And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

    See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

    '
    In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

    Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

    Keep in mind, there are legitimate investors, who have lots of experience and plenty of money that do SubTo legally and ethically. 


    That's not a reason, nor any detail, you only give an opinion that SubTo benefits the buyer, and no anything of it vs C4D. 

    Then talk about how SubTo is good for the Guru slingling how-to courses. 

    Aaaaaa ok, what the hell does a Guru's ability to sell more courses have to do with the actual viability of the transaction themselves? 

    You say "no money down" for SubTo. That's been pretty well fleshed out as the idiots path, persons with diddly squat for $ buying SubTo. 

    But more over, you can 100% buy on C4D with $1.00 down. 

    Both have cost of processing the transaction paperwork so that's a wash. 

    Next, to call SubTo "no risk" is the pinnacle of ridiculous BS statements. Seriously, you couldn't have meant that. That's like saying stop lights are GREEN, red light means go, it's just total blatant BS. 

    As for making "big returns", that is deal dependent. A person can make "big returns" in any/every strategy in existence, as well as making "big losses" and everywhere in between. 

    Yet again, NOBODY can point out 1 single logical or legit reasoning of anything SubTo does positively that can't be done via C4D........ 

    So I ask, why do SubTo then? EVER. If we have C4D readily available that achieves all the same things, BUT without all the negatives SubTo brings with it. 

    WHY?....... 

    I am begging someone please give me just 1 logical legit reasoning, not opinion but a actual factual reasoning. I am coming at this with scientific method trying to find this answer and I can't.      It seems nobody can either. 

    C4D does everything positive a SubTo can and without all the negatives; PROVE ME WRONG. 

    James,
    The way you describe contract for deed in your closing sounds very attractive. I have bought one property on a contract for deed years ago and got the seller to agree to change it for a deed and mortgage/deed of trust. One of my concerns is how and what would be the remedy if the buyer finished paying and something happened to the seller before the seller could sign off on the deed. I’m in Texas so I would not be able to use a C4D here, but if I ever ventured out into other areas it would be good to know.

     When I ask "Professor Google" about this it says C4D is NOT illegal in TX, just strictly regulated. Because it can be predatory. Which yeah, it totally could be so makes sense. 

    And in the little bit of looking I did, it seems it's all rather simple standard stuff. At least by my take. Thinks that basically read to don't use C4D to F-people. 

    So yeah, dig deeper into that, looks that is IS an option for ya. 


    Jim  not following here I know of course what a C4D is was super common in Or and WA in the day.. but if you have an already existing mortgage and you are not retiring it what does the C4D do for you than a wrap or All inclusive Deed of trust .  C4D is just another DT or Mort the only difference is title does not transfer but you still have to foreclosue it out if it defaults ???

    Can you explain the mechanics.

    I think in majority part it's really about simplicity. 

    With just an hour or so of conversation people readily understand and grasp all the details and facets of C4D, be it buyer or sellers. 

    The process of processing one and closing is also rather simple and streamlined. 

    All the various questions of "what if this, what if that" are readily answered, clearly stated, known and comprehended by all parties. 

    We have to keep in mind that these are not savvy persons most times, there blue collar average every day people, complexity is complex. And complex things are scarry in terms of a transaction the size of a home. 

    Those other options exist but there even far less known, much harder to grasp for people, and when people ask around on it many say "oh yeah, contract for deed, oh yeah I've heard of that before my parents/grandparents did...." and that is a very reassuring thing for people to hear it's known and been long experienced by others from "back in the day". 

    If go full-Monty on a default, yeah would have to follow that but at least here in MN it is a simplified process. It does not carry the exact same full extent for foreclosure as say Wells Fargo with a conforming mortgage has to go through. There is no 6mnth right of recission. Because all these things for default are in the contract and it's not a default and foreclosure on a mortgage, it's on a contract FOR a deed, not a mortgage instrument itself. 

    The law views it more like a delayed closing than a mortgage note. If that makes sense. 

    In all the years I've dealt with these I have never personally had one gone that road of default. And I've only known 1 that all but did. In that one, my friend filled the legal paperwork and got all that going and in 11th hour the buyer surrendered property back, vacated and paid up all outstanding monies, cancelling the contract mutually. And in that one, my friend did it to himself, he took a $5k down payment on a flipping duplex. Security deposits were more then $5k. So yeah, he set that one up for failure from get-go. 

    Generally speaking the #1 "problem" I've seen is near end of term buyers get approved for mortgage, approved for a lot more then what they need, start looking at home on the market at that higher approval level, then say they changed their mind and bought a different place so asking if seller would just donate back the $ they paid on this one. 

    Which is a no, a solid no. And they move on. Never had a 1 go to court or anything like that. They accept it as a cost of there decision. 

    The mechanics here in MN on default is actually a lot more like the process for a tenant who's in default and getting them out. Which if a tenant fights, can be a heck of a process. I actually have seen harder longer times to get a tenant out for default than on C4D. 

    Again, this is all with the preface of a C4D done correctly and legally. 


    James the issue is Sub to is a completely different transaction than C$D .  One your taking title .  the other your not C4D you have an interest but no deed until you pay it off.. And generally were i have seen them used is with free and clear prop not prop with an existing mortgage/trust deed.. And seller carry back on land for the most part.
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @Ken M.:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    Lol, they are doing "payment plans" for people...... Monthly payments. 

     I'll randomly get crap offers on my properties from idiots in his programs or whatever it is he's calling it. There are people who can't put two sentence together and he just let's um use a screen shot of one of his bank accounts. It's pretty weird. See below.


    But they paid 8k to be in the club.. I get the same BS its a joke.

    Keep in mind Ken M sells the same program OR he did for 15k each client  and I bet he was picking up 2 to 5 clients off of BP per month when he was subliminally advertising himself as the sub to guys.. I mean if you have specialized knowledge its fair game to charge for it.

    .

    PuuuLEASE, it is far from the "same" program". No purchasing a property without getting equity, no borrowing to do the EMD, no foreclosure schemes, always full disclosures, only in decent neighborhoods and always recording the deeds. I'm not trying to hide anything the way Morby does.

    "subliminally" good word by the way.

    May I state for the record, I only work with with guys who are accredited or close to accredited, have substantial reserves, who have a steady income outside of real estate and who want to stay out of trouble. It's a whole lot less to worry about that way.

    And, I make more doing my properties than I do on my mentoring. ;-)


    well you got a free plug for your training / mentoring without  the mods getting upset with you for self promotion .. :)
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  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Jay Hinrichs:
    Quote from @James Wise:
    Quote from @James Hamling:
    Quote from @James Wise:
    Quote from @Jay Hinrichs:
    Quote from @Don Konipol:
    Quote from @Nate Marshall:
    Quote from @Ken M.:
    Quote from @T. Alan Ceshker:

    That is a fantastic question.

    For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

    Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

    On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

    I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

    Thanks for the info and comments.

    Alan

    .
    Good info.

    I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

    Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

    well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

    No response necessary ;-) 

     This is a larger problem than people think. Many of the people paying

    $8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

    I wonder how many deals Morty’s mentees actually close? 

    Don I think they close quite a few  as Pace has a few things he teaches one is gater funding which is providing EM deposits for wholesalers and flippers.  Of course what could go wrong with that .. He also talks a lot about gap funding or seconds so those we know will blow up occasionally.  He has made millions personally  Just like any other national guru who hit it just right has the Utah based fulfillment companies coordinating his marketing. I suspect if I was guess he has made North of 50 mil personally and it could be closer to 100 mil over the last 5 or so years he has been doing this.. All the negative press he gets on Bp just water off of a very wealthy ducks back I am sure he could give a rip about what anyone says about him here on BP.   Guru done with right timing and right product like Sub to when rates rose is a total money maker for sure.. 


    Ain't no way....Even Clayton Morris who had a much larger following than Pace grossed a fraction of that. Morris got paid $6,000 by Whalen for every house he sold. He sold about 500 so that's a gross of $3 million......No way Pace is pulling in $6,000 from his students who need $500 EMD loans.


    Lol, they are doing "payment plans" for people...... Monthly payments. 

     I'll randomly get crap offers on my properties from idiots in his programs or whatever it is he's calling it. There are people who can't put two sentence together and he just let's um use a screen shot of one of his bank accounts. It's pretty weird. See below.


    But they paid 8k to be in the club.. I get the same BS its a joke.

    Keep in mind Ken M sells the same program OR he did for 15k each client  and I bet he was picking up 2 to 5 clients off of BP per month when he was subliminally advertising himself as the sub to guys.. I mean if you have specialized knowledge its fair game to charge for it.

    .

    PuuuLEASE, it is far from the "same" program". No purchasing a property without getting equity, no borrowing to do the EMD, no foreclosure schemes, always full disclosures, only in decent neighborhoods and always recording the deeds. I'm not trying to hide anything the way Morby does.

    "subliminally" good word by the way.

    May I state for the record, I only work with with guys who are accredited or close to accredited, have substantial reserves, who have a steady income outside of real estate and who want to stay out of trouble. It's a whole lot less to worry about that way.

    And, I make more doing my properties than I do on my mentoring. ;-)


    well you got a free plug for your training / mentoring without  the mods getting upset with you for self promotion .. :)
    Gracias.
    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    1y
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    In my opinion no, an unrecorded deed, assuming it's properly executed, conveys title to the grantee.  It may surprise people to know that a deed does not need to be notarized to be effective, since notarization is required to make a deed recordable, not effective.  Of course, not recording the deed means it is does not provided constructive notice of the conveyance to third parties so their interest (the 3rd party's) may have priority over the grantee's, even if the 3rd party's interest arises after the conveyance, and surprisingly, even if the 3rd party's interest is also unrecorded.  Of the course the 3rd party's failure to record its interest leaves it vulnerable to the same risk of a 4th party's interest. 

    3Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    1y

    Safely or not, it's a rare day that the seller in a sub-to deal walks away in better shape. That is, unless the loan gets called, then they hit the lottery. I've seen that happen many times. I'm a fan of win/win deals. 

    Not a fan. I'm starting to see a lot of these that were set up with balloons three years ago and now the buyers are in serious trouble too, negative equity, no capital and no real income that will allow them to refi. Just had someone bring me one of those situations yesterday and wanted to know what kind of secret tricks there are to let them keep the property without coming up with another $100K and getting a job. 

    1Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    1y
    Quote from @Corby Goade:

    Safely or not, it's a rare day that the seller in a sub-to deal walks away in better shape. That is, unless the loan gets called, then they hit the lottery. I've seen that happen many times. I'm a fan of win/win deals. 

    Not a fan. I'm starting to see a lot of these that were set up with balloons three years ago and now the buyers are in serious trouble too, negative equity, no capital and no real income that will allow them to refi. Just had someone bring me one of those situations yesterday and wanted to know what kind of secret tricks there are to let them keep the property without coming up with another $100K and getting a job. 

    I have a friend that’s famous for saying that balloons are for clowns. 

    2Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Peter Walther:
    Quote from @Ken M.:
    Quote from @Don Konipol:
    Quote from @Ken M.:
    Quote from @Don Konipol:

    Can a “subject to” transaction be done safely? 

    There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

    I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

    The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

    1- the ability to buy a property with little down payment

    2- the ability to obtain financing at below market rate

    3 -not needing to qualify for convention/institutional financing

    4- not having another debt on your PFS

    5 - not needing to pay points and other fees to obtain a new mortgage 

    The positives for the seller are 

    1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

    2 -expand the pool of potential buyers 

    3 -possibly obtain a higher price/ quicker sale 

    4 - can utilize a wrap to potentially earn the “differential” on interest rate 

    5 -May be able to save the Realtors commission


    All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

    .
    These are very important points for each side of a creative finance transaction.

    A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
    ***************************
    I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
    ***************************

    Uniform Residential Loan Application  1003

    Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

    and includes a full page of boxes to fill in such as 

    Property Value
    Status: Sold, Pending Sale, or Retained
    Intended Occupancy: Investment, Primary Residence, Second Home, Other
    Monthly Insurance, Taxes,
    Association Dues, etc. if not included in Monthly Mortgage Payment
    For 2-4 Unit Primary or Investment Property
    Monthly Rental Income

    Creditor Name Account Number
    Monthly Mortgage
    Payment Unpaid Balance To be paid off at or before closing
    Type: FHA, VA, Conventional, USDA-RD, Other
    Credit Limit (if applicable)

    It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.


     Here’s where you make a slight error.

    “Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

    What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

    “When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

    No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

    Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

    No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

    Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

    I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

    As always, facts are case specific.  



     Do you have a cite for that case?  I'd like to take a look at it.

    @Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

    Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

    https://www.azleg.gov/ars/33/00412.htm 
    B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.




    In my opinion no, an unrecorded deed, assuming it's properly executed, conveys title to the grantee.  It may surprise people to know that a deed does not need to be notarized to be effective, since notarization is required to make a deed recordable, not effective.  Of course, not recording the deed means it is does not provided constructive notice of the conveyance to third parties so their interest (the 3rd party's) may have priority over the grantee's, even if the 3rd party's interest arises after the conveyance, and surprisingly, even if the 3rd party's interest is also unrecorded.  Of the course the 3rd party's failure to record its interest leaves it vulnerable to the same risk of a 4th party's interest. 

    .

    "an unrecorded deed, assuming it's properly executed, conveys title to the grantee. It may surprise people to know that a deed does not need to be notarized to be effective"

    @Peter Walther: Agreed. And the court agreed as well.

    0Reply
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