HELP!!!! Assuming a loan, subject to, in Baltimore, MD

19 Replies

Hey BP Fam,

I have a property owner that is willing to let me assume his loan. According to the rental numbers provided by the owner, the property cash flows at about 2.8% of rents and is currently 100% occupied. Does anyone know of any realtors/lawyers/cpas in Baltimore, Maryland that handles these types of transactions? I spoke to my real estate lawyer and he said he doesn't do them because there is no insurance/protection for buyer.

Any assistance provided is greatly appreciated.

Thanks!

E. Harris

An assumption is where you work with the lender to officially become the borrower.  Subject to is off the books and lender is kept unaware of what you've done.  You'll probably find more attorneys willing to do an assumption than a subject to, so be sure what you're asking for.  

Jon Holdman

    Eric I don't know an attorney there, but MAKE SURE you do a title search to make sure there isn't any unforeseen or undisclosed liens against the property.

    @Jon Holdman  Thanks for the clarification. I am finding that using the right terminology is important when talking to other investors. You know what you are talking about but the other party may not if you aren't speaking the same language. It was the same thing when I was I HVAC serviceman. Some guys called it a drill while others called it a zap gun. But I get what you are saying. I am saying two totally different things. ; )

    @Chris Harkins  Thanks for responding. I had not included a title search in my acquisition costs!

    Hi Eric,

    I'm a fellow newbie and just wanted to send a suggestion for you to gather additional information (beyond the seller's claims ) about  the rental rates in that market and specifically for that property by reviewing the rent rolls and current leases in addition to getting confirmation about the landlord's monthly expenses for the property. Just want to make sure that you're getting a good of a deal as it sounds. 

    Good luck!!

    Question:  Why is an attorney needed for a 'Subject to'? Isn't it an agreement between the seller and the buyer?  And couldn't an umbrella/personal liability insurance policy cover the buyer?

    One more thing, does Mr. Harris have an LLC?

    Originally posted by @Chris Harkins :

    Eric I don't know an attorney there, but MAKE SURE you do a title search to make sure there isn't any unforeseen or undisclosed liens against the property.

    Wow! GREAT tip for us newbies, especially if doing a private transaction. What is the easiest or best way to go about doing this on a property I am going to purchase?

    @Brian Kennedy   an attorney is almost always recommended just as safe guards against things you may not know about or havent thought about.. (such as getting a title search)

    I would hate to have a property quit claimed over to me only to find out later that there is an extra 30k lien from a contractor for unpaid work.. or even a 2nd mortgage that wasn't disclosed.. so now you're on the hook for that as well and it destroys the cash flow you thought you were going to get.

    While you could just register a quit claim deed.. if you don't do you due diligence, trying to save a couple hundred dollars  on an attorney overlooking the transaction, may cost you several thousand dollars on the back side. Well worth the investment in having someone over see the contracts and do some background work.

    Don't trip over dollars to save nickels.

    Eric,  I'd just like to add to what @Deshawn Jennings  posted.  Make sure that you do background checks on the current tenants.  Among other things, you don't want to inherit problem tenants which may be one of the reasons the owner is creatively selling.  @Brian Kennedy  check out podcast 109 with Scott Smith. Good luck Eric!

    @Jonathan Key  , you should just be able to call a local title/escrow company to do the search.. Shouldn't be more than a couple hundred dollars. Might check with your attorney and see who they use, or they might even have someone in house that can take care of it for you!

    @Andraise Scott  

    Great point Andraise. I didn't think about that! Would the background clearances be something that you have to get from the prior owner? Would he legally be able to pull background clearances on renter's prior to being under contract? or would he have to wait until he owns the property?

    @Deshawn Jennings  & @Eric H.  , The owner should supply all tenant info along with the rent roll for scrutiny once contracted.  Ask for it if they don't offer it automatically.   During then due diligence period the buyer should do their own background checks.  I wouldn't rely on past info from seller.  Things change, people change, times change.  BP has a list of tenant screening companies if you don't already have a resource.  Check http://www.biggerpockets.com/search/companies?utf8=?&term=tenant%20screening 

    @Brian Kennedy Yes I have an LLC.

    @Deshawn Jennings  

    Thanks for the thought provoking questions. I am finding that this deal is going to take a lot more due diligence than I was initially expecting. All of your points are valid and things I must consider before agreeing to the deal.

    @Andraise Scott  

    Thanks for responding! I haven't heard of anyone inheriting great tenants. Besides, the owner's tenant screening process will be different than mine. I will probably just evict them asap. Hate to sound harsh but business is business.

    @Chris Harkins   wrote:

    but MAKE SURE you do a title search

    And @Brian Kennedy wrote:

    Question: Why is an attorney needed for a 'Subject to'? Isn't it an agreement between the seller and the buyer? And couldn't an umbrella/personal liability insurance policy cover the buyer?

    I think @Eric H. understands this but for other new investors, even when you are buying directly from a seller, even in a subject to deal you should do a formal closing with an attorney or title company. They do a lot more than just a "Title search."

    Brian the insurance being referred to here is Title insurance. You probably can get title insurance but it would have an exception for the subject to mortgage.

     @Chris Harkins wrote

    While you could just register a quit claim deed.

    Readers, please get the term quit claim deed out of your head. That is a very weak deed and there is no reason to use it if the seller will give you a stronger deed. A quit claim deed may give you absolutely no rights in the property. 

    @Deshawn Jennings   wrote:

    Would he legally be able to pull background clearances on renter's prior to being under contract? or would he have to wait until he owns the property?

    You can pull public records on anyone without their permission, so there are things you can check. However even if you are the owner you don't have the right to pull private info like a credit report without the tenants permission.

    @Eric Harris 

    Does anyone know of any realtors/lawyers/cpas in Baltimore,

    Eric I can give you several title companies that investors use but I don't know if they do Subject to deals. Real estate agents are going to cringe at the idea. Both because it is simply out of the box and also they are going to wonder how they get paid. A CPA is not needed for anything to do with this kind of transaction but any could handle it at tax time.

    The CPA I use and recommend is Jeff Stoller of Goodwhich Stoller and Associates.

    @Ned Carey  Great advice on the quit claim deed.. I don't recommend it but again going to any attorney that is worth having will explain that to you.. I was simply trying to explain that "while you could do that..." As in a I want to do this as quick and as cheap as possible..   Don't side skirt the process.

    Trying to scoot around the process is probably going to cost you more money in the end.. Ned if you would, Please include the rest of the reference if quoting me as just that sentence alone pulls it out of context. My apologies if that's what you took away from what I was trying to explain.

    @Eric H.  , I hear you.  But, if the current leases call for new ownership to uphold them: 1.  You can't , legally, just go in evicting people without cause.  2. You might actually have decent tenants in place.  The seller may have a totally unrelated person reason for selling.  You're going to have to pay for some screening either way.  So, why not start by screening the ones already in place.  Why uproot people and deal with the change over expenses, just because, without even checking them out first?  You may wind up with more problems from the evictions including property damage and law suits (tenant friendly Maryland).  Just a thought.

    @Andraise Scott  I was thinking worse case scenario if I have to evict tenants. Indeed, the eviction process can be a messy situation. I will check out your recommendation for screening tenants.

    @Ned Carey  What's happening Ned? Thanks for chiming in and providing a resource. I will check them out.

    @Eric Harris

    Thanks for sharing your question...I learned quite a bit seeing the answers flowing your way.

    Originally posted by @Chris Harkins :

    @Ned Carey Great advice on the quit claim deed.. I don't recommend it but again going to any attorney that is worth having will explain that to you.. I was simply trying to explain that "while you could do that..." As in a I want to do this as quick and as cheap as possible..   Don't side skirt the process.

    Trying to scoot around the process is probably going to cost you more money in the end.. Ned if you would, Please include the rest of the reference if quoting me as just that sentence alone pulls it out of context. My apologies if that's what you took away from what I was trying to explain.

    Chris, don't worry I get it. My comment wasn't at all meant for you or about what you said is was for all the new investors reading along that have heard "quit claim"  deed and think that is the deed to use. I wish Gurus would stop mentioning them as they are usually a bad choice. 

    I understand that you "get it" - in general not just with the quit claim issue. That was obvious from your first post where you were saying the same thing i was just in a different way.

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