Subject to Short Sale deals
What is needed to successfully negotiate and close on a residential short-sale property subject-to the exsisting loan? Does the bank require you to have a certain income level etc in order to take over the person's mortgage? Someone who has succesfully done this please give me some insight.
:D
#1 Innovative Strategies Contributor
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#1 Innovative Strategies Contributor
- Lender
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A short sale means that the bank is willing to sell for below the loan amount. In this case they want to be out of the loan and want a cash sale.
I think what you are talking about is a loan modification, where the lender marks the pricipal amount of the loan down to the property value (the current administration has been pushing this for the last year and one half). These however are only done where the current borrower continues to own the property. Of course, after a current borrower does get a loan modification, you can purchase the property subject to the existing loan. This would be in violation of the due on sale clause, but it is possible that the sale would be under the radar of the lending institution.
#4 Off Topic Contributor
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Are there possibly two loans? The first would be a subject-to purchase and the 2nd would be shorted?
Or is there a loan mod as Don suggested?
I am lost based on what you posted. Any subject-to purchase doesn't require a formal assumption. If you formally assume the loan there would be no reason to purchase it subject-to.
If you post the details of the deal we may be able to help more.
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#3 Guru, Book, & Course Reviews Contributor
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Hi Jasmine, welcome to BP! I think you have blended two approaches together, the short sale process and a subject-2 transaction. The thought is interesting but the two methods together won't go together, 99% of the time.
As pointed out the short sale requires the lender to accept less than the amount owed with the seller moving out and not profiting in any manner. A sale transaction has to take place to payoff the original loan. If the lender were to modify that loan, the borrower must remain in the home. To get a lender to agree to take less and modify the note and allow it to be assumed is highly unlikely. They would be more likely to make a new loan to a new buyer, and that won't happen with the same collateral any longer.
The subject-2 requires the old loan to stay in place. While some suggest hidding the transaction and fearing the dreaded "due-on-sale-clause" it is not the way to attempt such a transaction IMO, unless foreclosure is iminent, where the technical short sale will last for a short duration. There are many threads on BP concerning this issue and you might check my recent posts to keep me from typing anouther page. .
What can be accomplished is approaching a lender, initially with a short sale and when they have a clearer picture of the situation, suggest that you be allowed to guarantee the loan. A portfolio lender might allow this and modify the loan, but this is clearly not under any program being used today.
It has been years since I did a transaction similar to this and it was a property that was in need of repair as well. When that property sold, the original borrower had a deficiency and I had guaranteed a part of the principal, up to my purchase price. So this is clearly a uniques and unorthodox transaction! I doubt that I or anyone else could accomplish that today.
There are a few short sale experts here on BP, IMO, James is very knowledgable as are other, they might respond to the likelyhood of a short sale modification being allowed with an assumption. My thought is highly unlikely, I just won't say impossible! Good luck, Bill
Okay, I guess I did mix two different strategies. I am asking hypothetically b/c I'm interested in buying some sfh and condos subject to the existing loan to hold as rental properties.
Hi Jasmine,
The subject-to deals work only when the loan is not underwater. If there is sufficient equity in the property, then a subject-to deal will work. This used to work great during the boom years but after the real estate crash, it became much more difficult to do subject-to deals due to the fact that so many loans went underwater as the property values declined. Some areas do not have so many underwater loans.
If you're looking at short-sale properties then the loan is underwater and simply not worth considering due to the reasons elucidated by the other posters above. You should focus only on "normal" properties with significant equity.
Just an afterthought a month later, LOL. In regards to the equity issue with the subject to deal.
There is a more creative strategy, where as if there is a first and second mortgage on the property. Basically, if the first mortgage is at 80% FMV of the house you short sale the second mortgage ONLY and reinstate the first mortgage and take over subject to the loan. You have just created equity in that house that was previously upside down.
Can be tricky, but can be done!! Good luck on future deals.