My first subject to deal - MO

13 Replies

Hi all!

I will be going to buy my first subject to (sub2) deal tomorrow ... I have a few contract questions I am trying to figure out.

1. When you write the offer are you writing it with a FSBO sales contract? And if so, what are you writing in as the sales price?

2. When you close, do you contract the lender and ask them to be sending you the mortgage info w/ a third party authorization?

3. What else am I missing? 

I will most likely be holding it as a rental for a few years and then selling. Any other thoughts, experiences, whatever you have ... thanks for your time!

Medium bridge logo with tagline 01Nathan Brooks, Bridge Turn Key Investments | 9132674114 | http://www.bridgeturnkey.com | Podcast Guest on Show #232

1) What is a "FSBO contract"? You write the contract with the owner of the property just like any other contract. The price you write in is what you agree the sales price to be. How much the owner gets is what is left over after the mortgage and the costs of the sale on the sellers side are subtracted out. The title company will figure this out.

2) There are various theories and strategies as to handle this with the bank and I will leave others to answer that.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

@Ned Carey  For sale by owner contract ...

It was my understanding that in a subject to property you would continue getting the benefit of the underlying mortgage getting paid off.  That would not be the case if we agreed on a set price.

Medium bridge logo with tagline 01Nathan Brooks, Bridge Turn Key Investments | 9132674114 | http://www.bridgeturnkey.com | Podcast Guest on Show #232

Nathan, I know what FSBO means. my point is there is no such thing as a "FSBO contract"

It was my understanding that in a subject to property you would continue getting the benefit of the underlying mortgage getting paid off. That would not be the case if we agreed on a set price.

In a subject 2 deal the mortgage stays in place and you simply make the payments instead of the former owner. I believe you understand that.  The price for the property is the amount of the mortgage due at the time of sale as well as any additional money you give the owner on top of that.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

@Ned Carey There absolutely is a FSBO contract. In KC there are FSBO contracts, supplied by the title companies in our area, which are four pages. And there are contracts the realtors use (KCRAR) and they are like 11 pages.

In Florida, there are FSBO, there are NABOR, and there are FAR contracts ...

It's important to understand the areas of the country with these contracts before making a comment like that.  

Medium bridge logo with tagline 01Nathan Brooks, Bridge Turn Key Investments | 9132674114 | http://www.bridgeturnkey.com | Podcast Guest on Show #232

@Nathan Brooks That is very interesting and seems like I had heard some states have FSBO contracts but I forgot all about it. Good info, thanks.

I have a friend that is a sub 2 master, his whole company is built around it but they do other deals also nationwide. He helps other people get their deals done too basically for a small fee once it closes. Not marketing anyone on here at all just offering to make the connection to help you out if you need it.

thanks @Jared K.  ... I ended up doing contract for deed because I just felt better overall with myself, and the seller.  I appreciate the help a lot!

Yeah, the contracts are always interesting, there is always something for all of us to learn! (boy do I!)

Medium bridge logo with tagline 01Nathan Brooks, Bridge Turn Key Investments | 9132674114 | http://www.bridgeturnkey.com | Podcast Guest on Show #232

@Nathan Brooks  Your very welcome! Oh I hear ya!! I learn something new almost every day and I love it. 

Originally posted by @Nathan Brooks:

@Ned Carey There absolutely is a FSBO contract. In KC there are FSBO contracts, supplied by the title companies in our area, which are four pages. . . .

 Well I stand corrected. As you said we learn something new here. 

Are these state required? It seems silly to call a contract a FSBO unless somehow required to protect FSBO sellers. I hate "standard" contracts. No one should tell me what my offer should look like.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

Originally posted by @Nathan Brooks:

@Ned Carey There absolutely is a FSBO contract. In KC there are FSBO contracts, supplied by the title companies in our area, which are four pages. And there are contracts the realtors use (KCRAR) and they are like 11 pages.

In Florida, there are FSBO, there are NABOR, and there are FAR contracts ...

It's important to understand the areas of the country with these contracts before making a comment like that.  

I have bought and sold my fair share of real property. This FSBO Contract idea is a bit off base. While the reader can choose to do what they wish but implying that something exists and is also legally and structurally sound and proper just because it was delivered by a title company is not prudent.

In Florida there is no such thing as NABOR (don't even understand what that is supposed to stand for) there is FAR contracts and FAR/BAR contracts.  (Florida Association of Realtors - FAR and FAR/BAR is Realtors and Bar Association).  

Most other states follow similar concepts where the contract terms set forth by either the state's Bar Association or the states Realtor Association.  There is no association of For Sale By Owner, so I am not sure if one should rely on such things.  Sounds like the equivalent of buying a contract at Home Depot - which can also be done and used.

All that said, a Buyer and Seller could write a contract on a napkin and use if they wanted to.  That doesn't mean it's a good idea.  

I would also point out, that contracts with 'less' pages are not necessarily 'better' contracts - you sort of have to wonder why the professionals have 11 pages and the other one doesn't.  

Subject-to deals can be tricky.  In Texas we use special title companies that are familiar with them and performs all of the necessary disclosure to make sure they are legit.  Check your states laws.  These can be very lucrative without a lot of capital or any required.  Just make sure you can carry the note if you don't get a renter or buyer, otherwise you will be wrecking the sellers credit if you can't perform.  That is the worst thing about those deals where people buy them and can't sell them fast enough.

I only own one subject-to property but it does have great returns.  They are very time intensive up front but pay off well once stabilized.  Good luck..

@Ned Carey  and @Dion DePaoli  

First, I do agree that we can't just go with the boiler plate contract, but with that said, it is perfectly legal and fine for a basic transaction between a seller and buyer to use the title company contract.  That really wasn't the point of my post, as I was really trying to get a grasp of how to structure the contract, regardless of what it's called. Somehow we have ended up on a journey about what may or may not be a contract :)

And Dion, the NABOR contract is a contract, for the Naples area market (Naples Area Board of Realtors) ... I have put together numerous deals as an agent buying and selling with this and the FARBAR contract in FL.  As we all learn, have to make sure doing our due diligence before saying it doesn't exist. A google search turned up one of them ... 

http://www.nabor.com/zzdwnlds/doclib/contracts/Sales_Contract_(Residential_Improved_Property)_4-1-2012.pdf

I do appreciate everyone trying to help ... I ended up putting the deal together, and doing a contract for deed, which my attorney is drawing up.

Thanks!

And @Ned Carey I would be VERY interested to read more about your lien investing, I find it very interesting!!!

Medium bridge logo with tagline 01Nathan Brooks, Bridge Turn Key Investments | 9132674114 | http://www.bridgeturnkey.com | Podcast Guest on Show #232

NABOR is Naples Area Board of Realtors in Florida. The MLS users have a contract prepared by local attorneys and the board which differs from the other contract platforms more generally utilized in the State of Florida. There are contractual differences with the NABOR contract regarding who pays title insurance at closing and specific clauses for inspections to name a couple of the big ones. Many Naples Brokers specify that offers must be on the NABOR contract. If anyone does business in Naples would like a copy of the NABOR contract I can send a blank for your review if you message me privately. I am a Realtor and a member of NABOR.

@Nathan Brooks

I have 2 paragraphs in my P&S agreement under "Purchase Price"(this is not the complete verbiage, just a summary of what is in my agreement)

 Para 1: sum to be paid at closing: $xxxx, classified as back payments/legal fees..etc or "balance due at closing $xxx (excluding seller closing costs, prorations..etc). 

Para 2: Subject to existing loan balance in favor of "bank name" and loan information.

This declares how I am acquiring.  I structure the purchase price based on what is agreed to with the seller.  

Ex: Seller owes $100k on loan and is $3k behind on payments/fees..etc.  I have agreed to pay him $2k to help with moving and get another place.  My offer is $102k (balance on existing mortgage plus proceeds to seller.  Sum to be paid at closing is $5k ($3k in back payments/fees, $2k proceeds to seller) plus closing costs.

Hope this helps for future transactions.

Dan Walters, Treasure Valley Home Solutions | [email protected] | 208.287.5450