So I Assigned A Sub 2... Now The Buyer Has Messed Up!!!

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So I Assigned A Sub 2... Now The Buyer Has Messed Up!!!

Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote

Good morning Bigger Pocket Community. We need all of the help we can find to make this a win-win for everyone!!! Last year we came across a 3 bed/ 2 bath, all brick home, in an ok neighborhood, and the seller was about to let the bank take it back. The home is worth about $65k, the mortgage was just under $60k, with monthly payments of $555 (piti). We put it under contract as a sub 2... We always use attorneys, even for sub 2's.... And assigned it to a colleague of ours who was newly separated from his wife. Since we weren't going holding this one, we wanted to insure that the Seller was somewhat protected... So we employed the 'double warranty/ deed in lieu of,' strategy at time of closing -- that's when you have the buyer sign a deed from him back to the seller... The attorney keeps this deed on file and it is not filed at the county unless there is a case of default; it would avoid the original seller from having to foreclose. He paid the seller $2k and paid me $2k on a note, which is satisfied.

A few months ago, this colleague and his wife decided to work it out. So, he moved out of that house and rented the place out... I wish he would have contacted us first, as he obviously knows nothing about being a landlord. Now, the payments are 3 months behind and the original seller has contacted the attorney to file the deed.

We have attempted to contact this colleague by phone, facebook, and even stopping by his residence... Still, nothing -- which means we have no lease agreement neither. We stopped by the home, which is now occupied by some unfavorable tenants -- from what we can see... Of course, they wouldn't answer the door. The attorney will be filing the deed here shortly... And we're wanting to gather as many suggestions as to how you would handle this situation from here... The seller is still motivated and the mortgage is 3 months behind (foreclosure territory), ~$2,200. The property looks like it may need cosmetics, from what I can see. The property should rent for $700-750/mo. What would you do? There's no idea too crazy... We're open to all suggestions... And A Win-Win Is A MUST! Thanks in advance.

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Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

And people think these sandwich deals are a good idea!

When you say you assigned this deal to your colleague, what do you mean? If you bought the house sub 2, you can't just "assign" the house to someone else. You could sell it to him, lease it to him, or assign the purchase to him (making him the buyer from the original seller), but there must have been some transaction between you and the colleague. What that transaction was will affect your options.

AFAIK, any pre-written deed in lieu is completely worthless. You cannot give away your rights. So, assuming the colleague is the actual owner, you would need to foreclose to take possession of the house. If the sale was directly from the original seller to your colleague (i.e., you assigned the purchase contract) then the seller would be the one to foreclose.

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Paul Ewing
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
12y
Renting at $750/month with a mortgage of $555/month is a nonstarter. You will be looking at some massively negative cash flow here. The only hope I can see would be to get it refinanced to a much lower payment or find some way to flip the house in a real sale.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
And people think these sandwich deals are a good idea!
When you say you assigned this deal to your colleague, what do you mean? If you bought the house sub 2, you can't just "assign" the house to someone else. You could sell it to him, lease it to him, or assign the purchase to him (making him the buyer from the original seller), but there must have been some transaction between you and the colleague. What that transaction was will affect your options.
AFAIK, any pre-written deed in lieu is completely worthless. You cannot give away your rights. So, assuming the colleague is the actual owner, you would need to foreclose to take possession of the house. If the sale was directly from the original seller to your colleague (i.e., you assigned the purchase contract) then the seller would be the one to foreclose.
3 Reply
Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Until you address Jon's questions, all I can suggest is that you get another attorney! Obviously the attorney doesn't understand the issues of circumventing foreclosure laws. Let another RE attorney who does litigation look at it. There could be some CYA stuff the attorney did as to deeds that you're not disclosing, but basically, that can just lead to more issues than you have now, if your "partner" objects.
Catch up the bank loan!
This is a good example of why sub-to guru deals are not a good idea, if you got this off #70 podcast, beat feet to a new attorney. Need to answer Jon's question as to who is in title, you may not have any standing to take action but you're certainly at risk of getting hammered by the seller!
Good reason to pull that podcast too, if it wasn't. Jon? :)
3 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
@Bill Gulley
Wait, wait a minute! You mean there's something wrong with the "get the contract, do the sandwich, collect the fee, start the timer on the time bomb, walk away and move on down the road" game plan? Really?
2 Reply
Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
I can't believe people willing get themselves mixed up in the middle of these disasters of deals, especially for a freaking $2k payday. Aren't there more worthwhile deals out there for you to pursue?
I don't know which bus stop ad you found your attorney but you the deed you described is not going to hold up. Someone is going to have to foreclose and everybody involved is going to be screwed.
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
For some clarification... We put the property under contract and assigned the contract to our colleague. All of the closing docs were between the original seller and this colleague... We never took title... We only collected a fee from our colleague over a few months.
At closing, the Seller gave a deed to the buyer... Another deed, from the buyer back to the seller, was also signed by the buyer and held with the attorney in case of any default... That's the deed the attorney is about to file. Hope this helps.
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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Originally posted by @Account Closed:
Another deed, from the buyer back to the seller, was also signed by the buyer and held with the attorney in case of any default... That's the deed the attorney is about to file.
You or the original seller need to consult another attorney before this one files that deed because it's not a valid deed. It will do nothing more than cloud the title.
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
... And maybe colleague is an inaccurate depiction of this guy... We were prior coworkers... Back in my Air Force days.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
That deed is completely worthless. That's why @Bill Gulley is saying you need a new attorney. Has your attorney mentioned Dodd-Frank or the SAFE act? I suspect not.
Why are you involved at all at this point? This is between the seller and the buyer. The seller needs to foreclose and take the property back. There is NO other valid way for them take back possession of the house, based on how you've described the transaction. You should not be involved at all, other than as the defendant in the lawsuits the buyer and seller may file against you.
1 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
@Jon Holdman Is foreclosure the right action here? The seller didn't finance the property, he sold it sub2, so he has no mtg, assuming the OP described the transaction correctly. The seller would be suing for breach of contract, etc. While the previously executed deed from buyer back to seller may be invalid, the buyer could Now sign a deed back to the seller. But of course, there's still the mortgage in default, through no fault of the seller to deal with.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Doh! @Wayne Brooks you're correct, assuming we fully understand the story here. The original seller is screwed. If the buyer has disappeared and is unwilling to do a proper deed-in-lieu to either the seller or to @Account Closed then the only recourse is to sue. If the payments continue to not get made the lender will eventually foreclose, take the house and the seller's credit will get wrecked in the process.
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Account Closed
OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
@Wayne Brooks and @Jon Holdman
What would be the difference in the buyer signing a deed NOW, versus the one he signed at the original closing?
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
One he signs now would be valid and will hold up in court. The original one won't. That original one is trying to subvert the buyer's rights as the owner of the property and give you a way to take the property without going through the proper process.
1 Reply
Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Wayne, a properly executed sub-2 has to ben done with a subordinate security interest in the property allowing the seller to foreclose on the equities as well as the underlying mortgage they financed to the buyer, the seller wraps the underlying mortgage, they are relieved of the obligation by the contract, the loan is not assumed as that requires the lender's consent.
Bet what you have is a contract without any further security agreement, that will then be as Wayne mentioned, you have no security interest to foreclose upon. Meaning, your attorney screwed up IMO and used a deed-in-lieu of foreclosure but that violates foreclosure procedures as a secured creditor in real estate. Pre-arranged deeds are not good practice.
At this point, you can make a new quit-claim deed as a deed in lieu, that being after the fact. Together with that deed, you should give the seller a letter as an acknowledgement of the deed being given freely as a cure for the default, that clears the seller from you or that partner from laying future claims as to your rights being circumvented.
Have your attorney draft a Hold Harmless Agreement in consideration of the deed given. A deed accepted is considered full payment of the credit obligation, it may not cover you in a civil case where the seller suffers other related damages, like burning his credit, he may still have other causes of action against you for putting him in this mess, so a HHA may, at least, give some eye wash where the seller feels he has no further action to gain. This is something to ask the NEW attorney about as the old one would be admitting some screwing up to go there.....asking for forgiveness. If you aren't in title or under that contract, and it's your partner, he needs to give the deed. In fact, both could, even if you aren't in title as that clears any interest you might have in the property. I can give you a quit claim deed to Trump Towers, won't mean anything.
You need to see an attorney! So much for old military buddies....... :(
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
Interesting... So, moving on... We still have a motivated seller of this house... What can be done with a property like this... After title has transferred back to the original seller and the tenants are out?
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
Hypothetically speaking... What if the deed was signed but never dated... How can you tell the difference between a deed from the original closing and one signed today?
0 Reply
Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
You're describing a wrap, @Bill Gulley That would have been a better way to do this and would have given the seller the ability to foreclose. This seems like a "simple" (HA!) subject to.
0 Reply
Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Originally posted by @Account Closed:

Hypothetically speaking... What if the deed was signed but never dated... How can you tell the difference between a deed from the original closing and one signed today?
So, you're going to FORGE the date on the documents? You're making a bad situation worse.
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
@Jon Holdman We would never FORGE anything... We do have ethics... That's why we're trying to see how to make this a Win-Win for everyone... We still have a motivated seller with a problem property. We're looking for solutions.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Again, sounds like you need a different attorney because it sounds to me like the deed wasn't dated and the attorney may attest to it later on! Not good, IMO.
Make a new deed with a letter and see if the seller will let you off the hook. Don't mean to sound.....whatever, but it was your thinking in the first place that got you in this mess, might stop thinking and see a good attorney.
Yes Jon, it should have been, but you're probably right, it wasn't. :)
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
Oops... Made one HUGE ERROR... It was sold on a WRAP from the seller to the buyer... Not Sub 2.
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OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
... But I learned a lot from you guys about Sub 2 and DIL's... Now, solutions... Any?
0 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Account Closed:

For some clarification... We put the property under contract and assigned the contract to our colleague. All of the closing docs were between the original seller and this colleague... We never took title... We only collected a fee from our colleague over a few months.
At closing, the Seller gave a deed to the buyer... Another deed, from the buyer back to the seller, was also signed by the buyer and held with the attorney in case of any default... That's the deed the attorney is about to file. Hope this helps.
The seller/borrower will receive the deed that's been held in escrow because the buyer defaulted, correct? But what the seller gets back is an occupied property with non-paying tenants and a mortgage in default. Hmm. It looks like you are the only person that is coming out ahead here, as you profited on the assignment and are no longer in the deal.
So what are you doing here? What's the question? You could give your assignment money back to the borrower so they could reinstate their loan. How's that for crazy.
1 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Account Closed:

Oops... Made one HUGE ERROR... It was sold on a WRAP from the seller to the buyer... Not Sub 2.
If there was a deed from seller to buyer leaving the seller's loan in place that's a sub2. Is the seller not the original borrower?
0 Reply
Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Well if the buyer signed a deed but didn't date it then putting in a date now would be forging the date.
Step 1 is to unravel the mess. You must track down the buyer and get their cooperation. Until that's resolved, this "seller" is not a seller at all. They cannot sell something they don't own and at the moment they do not own this house and do not have ANY way to gain possession of it. So worrying about what to do w.r.t. this "seller" is really pointless at this time.
In your shoes I'd be trying to make sure you have you're protected against any fallout. You are in a very vulnerable position. The seller may well file suit against you for getting him into this situation. Hopefully you have disclosures signed by the seller that very explicitly acknowledged the risks of doing this subject to deal. And that you did not make any verbal representations to the contrary. You may have been their savior when this deal was set up, but if you end up in court you are going to painted as the villain who stole their house while leaving them on the hook for the mortgage.
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