SUBJECT TO FINANCING, LETTER TO THE BANK, NOTIFY THE BANK?

6 Replies

I’ve read/maybe heard online, that a letter can be sent to the lender informing the lender the property is being bought subject to financing. Currently, I’m buying properties subject to by not telling the lender of the sale. The property is put into a trust (beneficial interest signed over to me), and I act as a property manager and trustee. I understand this is shady, but it keeps the lender from pulling the trigger on the due on sale clause. However, I’ve had a situation backfire. The seller needed insurance at her new apartment/condo, but no longer lives at the house/prior residence (homeowners policy). The bank informs her she has to cancel the homeowner policy (old house) and replace it with a landlord policy. To make a long story short, the name of the new owner of the house (me), does not match the name on the insurance policy (the seller). Not trying to further defraud/lie to the lender, I tell the bank I’ve been paying the mortgage for the last 12 months and that I bought the property subject to financing. I now have a landlord policy in place, and the lender knows I’m the new owner. It hasn’t triggerd the due on sale clause (yet) but I’d like to get to a point where I can inform the bank of the subject to transaction. Does anyone have a letter that they send to the lender that the property is being bought subject to and will be owned by the new owner (me)? 

What could possibly be the upside to doing this?

If the lender wanted their loans assumed they would offer that... after an analysis that the proposed borrower qualified.

Originally posted by @Tom Gimer :

What could possibly be the upside to doing this?

If the lender wanted their loans assumed they would offer that... after an analysis that the proposed borrower qualified.

 I saw some random post and the person basically was using it as a way to get into properties with 0 or little down...

It’s an inherent risk with sub2.....as you have seen, the change in the insureds name is usually what lets the bank know what is going on.

@Wayne Brooks in addition the guru tactic of changing vesting to trust is an alienation of title as well.

but its the law of averages.. most notes wont get called no matter what..

but this scheme is just so dangerous for sellers.. most have no clue as to what will bite them down the line.

they gave up title.

loan does not get paid.

credit trashed

there are those that did this as preditors ( not insinuating the OP is doing this just a commentary) they get in title rip the rents know the state they are doing this in has a very long foreclosure process years in some instances.. and seller is screwed fico wise and the guy in title just keeps ripping rent..

@William Metts , It is in no way ILLEGAL, on either end of the transaction to engage in a subject to transaction.  Any property owner can sell his property to anyone else and as long as both the buyer and seller know that there is a lien outstanding, know the terms of the lien, and understand that the due on sale clause has probably been violated, no illegal, immoral, or 'shady' transaction has occurred.

Further, there is no requirement,from a legal perspective, for the buyer to inform a lien holder that a transaction has taken place.  The lien holder still has both the lien position on the collateral and in most cases a personal guarantee from the seller.  The lien holder's remedy should they learn of the sale is to accelerate the note in accordance with state and local law.  If the note is then not paid off within the legal prescribed time, the lien holder may initiate foreclosure proceedings.

Assuming that the buyer of a subject to transaction hasn't put a lot of cash into the property, then the person with the most to lose is the seller.  It is the seller who is at risk for having ruined credit, and may be subject to a default judgement.  The buyer would only have additional liability should he have been foolish enough to sign a contract with the seller providing that he take on those contingent personal liabilities.

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