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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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
Leo Harvin ( quote )
"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?"
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I would think in court a judge would look at WHY the deed wasn't recorded for constructive notice to the world at the local clerks office when it was originated??
If a deed is very vague then all or certain parts of it can be deemed unenforceable in a court of law. Just because someone is an attorney doesn't mean you should blindly trust everything they say and tell you to do is 100% accurate.
Many people try and claim "fool's theory" and blame it on someone else to minimize impact on themselves.
There are many types of attorneys out there. The GP attorney dabbles in many facets of law but are generally the master of none.
You need a specialist attorney " real estate litigation " and the cost of such attorney could exceed your original fee you made and then some.
When the subject to deals bight back they can bight hard so in the future you might want to budget in a contingency or full time attorney fund for the ones that go bad.
No legal advice.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
OK, just saw your reply that this was a wrap. That's very good. So, the seller is the grantee on a mortgage or deed of trust with the buyer as the grantor, right? Assuming that's true then the seller needs to start foreclosure proceedings against the buyer. That's a process. The seller will have to follow the process correctly to get possession of the house. Or, really, they will start the process to sell the property at auction. That may or may not end up with them having possession. But it will get them a payoff of the amount they're owed, which they would in turn use to pay off the original lender.
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Account Closed
OP
Real Estate Investor · Warner Robins, GA · Member since 2012 · 18 posts · 1 vote
12y
No... It was a wrap... After reading all of the posts, I had check... We never do sub 2's... We have done Exact Wraps... But always Wraps.
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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Patrick L.:

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.
This isn't necessarily true. The deed back to the seller and held by an attorney may present no problem at all. This assumes it was property executed so that it can be recorded and that the sub2 buyer doesn't object. Once the property is back in the seller/borrower's name it would allow them to refi or re-sell. Technically, of course, because without a lot of equity there may be no point.
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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Jon Holdman:

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.
Why is everyone saying this deed is worthless? A property executed deed from the buyer back to the seller is not worthless.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
The deed was made in an arrangement to circumvent foreclosure laws, the purpose of the deed is contrary to law, not valid. :)
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Some light reading:
http://www.atgf.com/tools-publications/pubs/deeds-lieu-foreclosure-advantages-disadvantages-and-drafting
:)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Account Closed A pre signed deed can be recorded. At least in Oregon and according to my re attorney the person signing the deed back to seller at the time they buy the property is voidable, mot necessarily void. If the person in the home got an attorney that deed would be set aside and a full foreclosure would need to occur. I had this discussions many times with my attorney in my HML. Days.
According to the original post the original owner was losing the house. I suspect the original seller will just lose the house. The middle man is down the road.. Sub two and wraps in the wrong hands are terrible ideas for sellers for all the reasons stated above there is insufficient equity to cure. And though the gentlemen who originally posted wants to help . I think as you stated his help will not include putting his fee back into the deal
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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Jay Hinrichs:

@Account Closed A pre signed deed can be recorded. At least in Oregon and according to my re attorney the person signing the deed back to seller at the time they buy the property is voidable, mot necessarily void. If the person in the home got an attorney that deed would be set aside and a full foreclosure would need to occur. I had this discussions many times with my attorney in my HML. Days.
According to the original post the original owner was losing the house. I suspect the original seller will just lose the house. The middle man is down the road.. Sub two and wraps in the wrong hands are terrible ideas for sellers for all the reasons stated above there is insufficient equity to cure. And though the gentlemen who originally posted wants to help . I think as you stated his help will not include putting his fee back into the deal
Oh I know a "pre signed" deed can be recorded. That's why was I curious why everyone is saying the deed is useless. If it was trying to circumvent foreclosure indeed there could be an issue.
The OP has not described this deal in a way that makes sense to me. Do we know if there is a note between the original seller and buyer or just an agreement. The buyer is MIA and if there is a deed that can be recorded to restore title back to the original seller/borrower, that would be my first step. A title company can confirm if it will do what it's supposed to do. If there is a mortgage between the buyer and seller that wrapped the original loan.....that's a different story.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
Maybe the OP should consider giving his fee back to the seller. Unless the owner signed something releasing the OP from the original purchase contract for the assignment, the purchase agreement survives the closing, and the OP is still the one who was in contract with the seller, jointly with the assignee/end buyer.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
No idea why I got a mention, but another issue.
SUB-2 AND WHOLESAERS..................TAKE NOTE
Possession, when did your "buddy" sign a lease with that no good tenant? You know, the guy could pay rents and stay there for 6 months after your seller gives notice of foreclosure under federal law.....if a deed is given, the lender is still on the hook for the remaining lease up to 6 months. so you may need to wait to do another deal for your seller.
And since you or the seller aren't in title, you can't evict the tenant, not until the seller is back in title. So, you may have a chicken or the egg question. Get title, go the eviction route for non-payment and the tenant comes up with rents, and you'll start all over most likely. You could hope it just goes through as an eviction.
Cash for keys with the tenant might get them out of the way, now.
It also sounds like "your partner" was not a real estate partner but an Air Force buddy you sold the property to. And did this begin as an owner occupied with him moving in from a divorce, or was the intention from the purchase always as a rental? If your "buddy" shows up later, depending on the intent and his attempting to lease was to cover the obligation, other doors could opened, an invalid deed, an owner occupied, a wrongful foreclosure if that deed is filed contrary to his homestead exemption rights, origination of a consumer financing arrangement.....it could mount up, if a local DA get's involved, your shambled deal can go down some serious roads. If someone screams fraud, and that sticks and you used bank deposits, that goes on to wire fraud.
I don't think you grasp the serious nature that could unfold and you're still trying to make a deal out of this with the seller. I'd say run away as fast as you can if the seller will let you.
Now, if the seller is your brother-in-law the worse thing is you may not get to go to the family thanksgiving dinner.
We don't have all the details, started out as a sub-to, now it's a wrap (basically the same) and you seem to have an attorney who pockets deeds on the side as a solution to problems. You have a tenant in there you don't care for, but he has rights too, even if he hasn't paid. The seller obviously can't make up the mortgage payments, that was his initial motivation to sell and stay out of foreclosure, now he's right back where he was, but in worse circumstances. I don't even want to ask about your other wraps or if those buyers were occupants or how many you have done, when one deal blows up, it's likely other deals will be uncovered, especially if someone uses that "F" word, (fraud).
I don't mean to jump your stuff and scare you, but actually I do mean to put some fear in you as between you and that attorney, you have a real mess going on. If I were you, I wouldn't try to squeeze another dime out of this, if the seller is still willing to work with you, get a Realtor and see if the can get a cash sale, I'd be looking for a back door, not trying to pull another deal.
I could go on, but this is too long already. :) Hope you get a new attorney and get rid of this.
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Anna Shaver
South Lake Tahoe, CA · Member since 2014 · 111 posts · 37 votes
12y
@Bill Gulley After getting a new lawyer right away.. Depending on what Leo has been saying on the messages left for the old service buddy, his service buddy may not realize that this might be able to be resolved without more money out of his pocket and is ignoring the problem hoping to make it go away.
If Leo's service buddy is willing to sign and walk away, could @Account Closed if he still has it and is willing, try to make this situation right (or more right anyway) by giving up his $2K fee and send the money immediately to the bank to prevent foreclosure and help the original seller start the eviction process with tenant in place? It could be marked up to a lesson learned as what not to do.
Bill, would this be possible? Leo could send an email outlining what he is suggesting to his colleague with the form to sign requesting he send it back the same day. He could also stop by the colleagues house and talk to his wife, politely explaining the situation to her if her husband isn't there.
Or in this situation would you tell him get a new lawyer and don't make this worse?
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Anna Shaver
South Lake Tahoe, CA · Member since 2014 · 111 posts · 37 votes
12y
@Bill Gulley guess it looks like Leo closed his account. The system didn't show up as closed until after I posted.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
No idea, didn't mean to crash and burn him, but it might be good not to keep going as I'd bet his attorney, the old one, would advise him not to air this laundry in public. He probably bailed and pulled the chute before my last post above.
No idea of the personal relationships going on, or how all this came together, but I do know it's not good and it could get nasty down the road. I hope he gets it ironed out. I agree he should be using that fee to help pull this deal out of the fire.
If he did close and run, he can always sign up again. Yes, lessons learned, often the hard way and usually avoidable too.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Anna Shaver
@Anna Shaver The chance,s of this guy doing anything else Is in my mind remote at best. I have seen it Many times over the years this is what gives the industry a bad name and those that do sub too or wraps on properties with little or no equity and no personal. Exposure. We will never here from this dude again and the house will get foreclosed on which was inevitable.. This guy just squeezed 2k out of the deal for himself. I don,t think Bill scared him at all. He is just another in a long line of these actors
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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Jay Hinrichs:

@Anna Shaver
@Anna Shaver The chance,s of this guy doing anything else Is in my mind remote at best. I have seen it Many times over the years this is what gives the industry a bad name and those that do sub too or wraps on properties with little or no equity and no personal. Exposure. We will never here from this dude again and the house will get foreclosed on which was inevitable.. This guy just squeezed 2k out of the deal for himself. I don,t think Bill scared him at all. He is just another in a long line of these actors
I was curious why he was here posting asking for ideas. He was out of the deal long ago. It sounds like the sellers are still communicating with him. He'd be the last person I'd be asking help from if I was the seller. What's he going to do, bring them another bad buyer? Take over property management? Pony up money to reinstate their loan?
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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Originally posted by @K. Marie Poe:

I was curious why he was here posting asking for ideas. He was out of the deal long ago. It sounds like the sellers are still communicating with him. He'd be the last person I'd be asking help from if I was the seller. What's he going to do, bring them another bad buyer? Take over property management? Pony up money to reinstate their loan?
He came here looking for another "win win" solution which I assume means he was looking to get paid for something again. He wasn't looking for a way to fix things for the seller, he was most likely just trying to see if there was an easy way for him to hustle a few more bucks at someone else's expense.
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Doug P.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
12y
Regardless of whether or not this particular deal was properly executed. It amuses me no end that all of you are painting take over payments deals like this as bad for the seller.
How--exactly--has the seller lost out?
They were on the verge of foreclosure a YEAR ago. For ~9 months their payments were made FOR them. They've enjoyed a year of good credit that they otherwise would not have had, with no effort on their part.
The only part of your arguments that I agree with is that the OP shouldn't have assigned the deal. Although that is legally a perfectly viable thing to do. It leaves a situation where there are 2 parties (the buyer and seller) who have no clue how these deals are supposed to work. The investor should remain in the middle, in communication with everyone involved, and in a position to solve any issues that come up (including refinancing the house him/herself). Like this situation with the buyer renting the place out (which he shouldn't have been allowed to do.)
I had something similar to this happen where my buyer wanted to move in with his new girlfriend. Since I was still involved and in communication with him we struck a simple deal. He helped me find a replacement buyer, and left the property in the same condition he found it, and I gave him his money back.
I understand though. I mean things CAN go bad. A situation arises, the newbie investor panics, the seller or buyer (or both) dig their heels in and what should have been an easily fixed minor inconvenience becomes a mess. But let's not get crazy. These things go wrong VERY rarely when done properly. We're talking about a 1 in 100 (at most) situation. I shudder to think of all the sellers who's credit would be ruined and all the buyers who couldn't get into a home if investors stopped doing these deals.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Doug P. I agree with you to an extent. Why it's bad for the seller is they now do not have the ability to do a deed in Lui or short sale which is not as damaging to their credit
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Doug P.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
12y
@Jay Hinrichs Fair enough. And please forgive me if I got carried away in my previous post. I don't know the ins and outs of short sales or foreclosure law in the US.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Doug P. Np when I made a hard money loan in b/c I got an education in how hard it is to foreclose in that unbelievably gorgeous part of the world
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Doug P. I mean British Columbia I owned a home in keel owns for years love it there
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Gilbert Dominguez
Investor · Chicago, IL · Member since 2015 · 677 posts · 309 votes
11y
You found a buyer before, find one again but this time pay for the property. Forget any compensation you are now trying to protect your rear end ............ period.
I am no judge but if I was I better see you doing something to remedy the situation and fast.
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John Hamilton
Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes
11y
You can bet the air force buddy is collecting rent on something he doesn't own outright. He doesn't care about the seller or the existing loan, or the property as exhibited by his disappearance.
I was floored when the OP thought a win-win could still be accomplished. Really? Potential cloudy title by an unrecorded deed, home occupied by god knows who, buyer who skips town but still collects rent (I'd take that bet), seller who is close to or in default with an fully mortgaged asset, and a clueless "investor" who screwed this up for everyone, except himself, from the beginning. I don't see much upside here, even if he did get another buyer. No new buyer would or should touch this with a 10' deed-in-lieu.
The OP should have posed this scenario before trying to pull off the "best deal ever". Too much work and drama for $2,000, IMO. Not to mention, he could be, and rightfully so, in legal trouble. Then, OP wants to compound problems by post dating legal transfer documents? This guy should become a guru and sell this. He'd be rich!
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