Getting Title Insurance when using Subject2 and wrap mortgages

4 Replies

I was wondering if it is possible to get title insurance when buying subject2 and then selling using owner financing?

My title company said they could do it but they would need to contact the original lien holder, which is not what I want to do.

Rick

Rick, they probably know that and, the sub-2 seller will also need to approve as they are basically acting as a financing conduit, same as a lender.

You mentioned you selling again wrapping a wrap. Selling to an occupant means REPA compliance, I assure you, no closing agent or seller without a rather sophisticated finance background will get it right. The amortizations will be different, rates wanted are usually different by a seller, disclosures and taxes are  to weighted average yields over each payment period, it gets complicated. Selling to an investor takes out Dodd Frank issues but not the financing and tax matters.

You also can't force your seller to finance to a third party without consent, it's required for unilateral contracts.

You can buy sub-2 and do a lease option so long as you don't finance the option price or attempt to give rent credits.

This type of question seems to pop up about weekly, so might search the forums, not podcasts or blogs, for more details. :)

BTW, welcome to BP!

Hi Bill,

Thanks for your reply...

You said...

they probably know that and, the sub-2 seller will also need to approve as they are basically acting as a financing conduit, same as a lender.

"I am not sure what you mean when you said the sub-2 seller will also need to approve, approve what?"

You said...

You mentioned you selling again wrapping a wrap. Selling to an occupant means REPA compliance, I assure you, no closing agent or seller without a rather sophisticated finance background will get it right. The amortizations will be different, rates wanted are usually different by a seller, disclosures and taxes are to weighted average yields over each payment period, it gets complicated. Selling to an investor takes out Dodd Frank issues but not the financing and tax matters.

"I don't believe, from what I understand, that when I buy sub-2 it is actually a wrap since I am making payments on the first mortgage. When I sell the home  I am going to be using a servicing company to handle the mortgage amortization, handle the payments and end of season tax information, I will be paying on the first loan again using the servicing company."

You said...

You also can't force your seller to finance to a third party without consent, it's required for unilateral contracts.

"I won't be forcing the seller to finance to a third party, they will have all of the details on how the transaction will be structured in writing and signed by them acknowledging that I will be making the payments."

You said...

You can buy sub-2 and do a lease option so long as you don't finance the option price or attempt to give rent credits.

"Are you suggesting I shouldn't apply some of the mortgage payment as a credit for when they buy the property?"

Rick

There was most likely title insurance issued when the seller financed or re-financed the house.  If it wasn't 30 years and 2 inheritances ago and the home isn't in an industrial area (i.e. old gas station or something), I wouldn't bother trying to re-insure the title. In my area I research my own titles at first, then order an 'owner and encumbrance' report from my title co for around $120.00 before closing.  They e-mail it to me.  It details all owner's of the property and any existing encumbrances.  Once they caught a blanket mortgage I hadn't seen.  That property was encumbered with 6 others!

A couple other main additional things I do when I buy sub2:  I make the mortgage pmts directly to the lender. I make them through my prop mgt co, but you don't have to have one.   The seller can check online to make sure it's been paid.  The other thing is have the seller add you as an additional insured person on their hazard insurance.  If the seller discontinues property insurance at all the lender will know (and apply their own at an extremely high cost).     Good luck!

Hi Steve,

Thanks for your input, your suggestions make a lot of sense, but my main question is when I sell the property and the new buyer makes a request for Title insurance would they be able to get it without us having to notifying the original lender.


Rick

Originally posted by @Steve Vaughan :

There was most likely title insurance issued when the seller financed or re-financed the house.  If it wasn't 30 years and 2 inheritances ago and the home isn't in an industrial area (i.e. old gas station or something), I wouldn't bother trying to re-insure the title. In my area I research my own titles at first, then order an 'owner and encumbrance' report from my title co for around $120.00 before closing.  They e-mail it to me.  It details all owner's of the property and any existing encumbrances.  Once they caught a blanket mortgage I hadn't seen.  That property was encumbered with 6 others!

A couple other main additional things I do when I buy sub2:  I make the mortgage pmts directly to the lender. I make them through my prop mgt co, but you don't have to have one.   The seller can check online to make sure it's been paid.  The other thing is have the seller add you as an additional insured person on their hazard insurance.  If the seller discontinues property insurance at all the lender will know (and apply their own at an extremely high cost).     Good luck!