Mortgage Assignment Contract Overview?

Real Estate Guru, Book & Course Reviews and Discussions 108 Replies

I have been inquiring about this new method of real estate investing. Is there anyone here on BP who's familiar with doing Mortgage Assignment Contracts? If so what are the pros and cons? I want to start doing this because opportunity seems priceless, if anyone can touch on this subject matter it would be greatly appreciated.

Thanks

Taking over a good mortgage is a great way to gain control of the property. Do you have any specific questions on the subject. What state are you looking to do this in?

Well as I've stated I'm new to this way of investing. What would be if any out of pocket cost I would have to pay in order to make a transaction such as this work bet. the buyer and seller? Do I even need money? I would be looking to do this in NYC, NJ & Atlanta for now.

I listened in on a webinar by Michael Kimbel and Phil Grove on MAPS (Mortgage Assignments). From what I can tell just by listening, this is nothing more than buying a property sub2 and assigning the contract to and end buyer. There was no mention of working with the lender in taking over the loan. I'm not sure why this is even called a mortgage assignment. I admit, I have not read the materials or reviewed the contracts so I may have missed something, but I don't think so.

Sounds like an old technique (subject to) with a new name.

Jon Holdman, Flying Phoenix LLC

is that what they're calling sub3 now? or is that something else??

Bryan A., Carolinas Revitalization, LLC | [email protected] | 704‑905‑6510 | http://www.facebook.com/carolinasrevitalization

A mortgage assignment is not new. All this is is placing a property under contract subject-to and assigning the contract to and end buyer. This is basically the same thing as brokering properties with "seller financing."

The reason this technique is popular right now is that there were many low down payment loans made on property that now has little, no, or slightly negative (not enough for a quality short sale) equity. The seller needs to leave for whatever reason and can't sell their house because they don't have enough equity to pay for the transaction and broker costs. Investors that find these deals can show the seller how to sell using their existing financing and make a "wholesale fee" for doing so.

Subject-to deals were traditionally done on property with more equity and an investor would buy the equity at a large discount. It doesn't make sense for an investor to stomach all of the debt on the property if they aren't buying equity at a discount for these properties so they instead act as a "principal/broker" by wholesaling the property to a new buyer. Think of the investor as a broker that demonstrates seller financing to the original seller and wrap notes or installment sales to the new buyer.

You may ask yourself why agents aren't doing more of this. I have heard of several that are, but my guess is the real estate commission folks don't like them because these contracts violate the due-on-sale clause in almost all instances. If you do something like this you will want to get a mound of paperwork to protect yourself if the original seller ever has their note called!

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

Originally posted by Jon Holdman:
Sounds like an old technique (subject to) with a new name.

Exactly! Much the same as "wholesaling lease options." :-)

Thanks Bill & Brian for that in depth review on this form of real estate investing.

This is not new at all. It is a concern to me as a licensed RE broker in Texas. Even if I do a deal for my own portfolio and do not represent any parties to the transactions, I'm very concerned about the liability if something blows up.

The other issue I can see coming is with this government crap about controlling everything in RE transactions concerning home purchasing. We may find this outlawed soon as we have land contracts and much of the owner financing.

Otherwise, this technique has merit.

Hello!
I am new to Real Estate Investing, and this is my first post in this forum!

I have a couple of questions also regarding these Mortgage Assignments, after also watching Michael Kimbell's webinar:

Who's name is on the loan?

If the buyer defaults, how is the title returned to the seller? And who long does it take for the title to return to his hands? (By this, I mean, will the seller have to foreclose on the buyer? Doesn't this take a really long time?)

Does the buyer ever get the loan in his name? (say after a few years?)

What happens if the owner of the mortgage dies? Who ends up with the house/title/loan?

I am confused, as I have heard that banks are not allowing assumable mortgages, or perhaps I'm not understanding the maneuver.

Thank you for your help!

Welcome Carlos!

Originally posted by Carlos Zorrilla:
Who's name is on the loan?

The original seller’s name(s) will remain on the loan or whatever entity that originally obtained the financing in the cases where there is an entity involved. Some of these cases involve personal guarantees as well.

Originally posted by Carlos Zorrilla:

If the buyer defaults, how is the title returned to the seller? And who long does it take for the title to return to his hands? (By this, I mean, will the seller have to foreclose on the buyer? Doesn't this take a really long time?)

A foreclosure will be necessary IF the title is transferred. Executory contracts that include lease/options longer than 6 months, contracts for deed, etc. are not permitted in some states like Texas. Assuming you transfer title you will have to foreclose.

Some states have a lengthy foreclosure process and some don’t. It really depends on where you live. Keep in mind that there are other MAJOR risks like the new buyer declaring bankruptcy to stall the foreclosure via a stay from a judge. If you and/or the original seller is stuck making these payments while there is no mortgage money coming in then this is a huge risk that should be mitigated via paperwork your attorney prepares. Bankruptcies are much more common with people with bad credit so this risk should not be dismissed summarily.

Originally posted by Carlos Zorrilla:

Does the buyer ever get the loan in his name? (say after a few years?)

It depends on what is negotiated and how the deal is set up. If there is a balloon in the new note written that is the easiest way to accelerate the note and foreclose if the buyer doesn’t perform as negotiated. Bubbles, adjustable rates, etc. are also things I see frequently.

Originally posted by Carlos Zorrilla:

What happens if the owner of the mortgage dies? Who ends up with the house/title/loan?

I am assuming you mean the mortgagee and not the mortgage. This varies by state law too and is no different than any other situation where someone dies.

Originally posted by Carlos Zorrilla:

I am confused, as I have heard that banks are not allowing assumable mortgages, or perhaps I'm not understanding the maneuver.

Ahh…the questions were all simple until this one ;-). Read through the forums. There is literally two books’ worth of information on the due-on-sale clause, arguments for and against use of trusts, disclosure opinions, etc. The short answer is that the bank doesn’t have to approve things and retains the right to call the note once the property is sold.

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

Bryan, thank you very much for your answers!

If I may pick on your brain for a little bit longer, I have a couple more questions... in some degree the Mortgage Assignment makes a lot of sense, and in others it just seems nonsensical!

If the buyer does not have title, what happens if he defaults?

In the case of the buyer, does the title have to be transfered over to him? Your response made it seem like not always. Will a buyer agree not to take title (and thus any claim on the property) for 10-15 or even more years?

What rights does the buyer have over the property?

What rights does the seller have (if he still has title)?

What if the buyer wants to sell the property?

Thanks again, and I will begin scouring over the forums in order to learn some more!

Originally posted by Carlos Zorrilla:
If the buyer does not have title, what happens if he defaults?

It depends on how the transaction is set up. You really need to speak with an attorney. For instance, in a lease/option (no title transfer) you would simply evict the tenant. In other cases the contract should govern what happens.

Originally posted by Carlos Zorrilla:

In the case of the buyer, does the title have to be transfered over to him? Your response made it seem like not always. Will a buyer agree not to take title (and thus any claim on the property) for 10-15 or even more years?

The title has to be transferred if state law says it does. This is the case in certain scenarios in Texas. I don’t know your state’s laws well so you need to speak with an attorney. There are many exit strategies where the “buyer� (optionee?) doesn’t take title.

Originally posted by Carlos Zorrilla:
What rights does the buyer have over the property?
What rights does the seller have (if he still has title)?

My apologies…but these questions are too vague to answer. It depends on how things are set up.

Originally posted by Carlos Zorrilla:
What if the buyer wants to sell the property?

If he owns the property he sells it. If he doesn’t, he can’t. There is nothing magical about seller financing and it can have prepays or anything else a “regular� loan has.

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

Thanks again Bryan!

I can only notice how much I still have to learn...

I appreciate your answers!

I went and read a paper at http://www.mortgageassignmenttruth.com

I am not convinced that the MAPS is all it is cracked up to be.

Larry

Originally posted by Larry Oringale:
I went and read a paper at http://www.mortgageassignmenttruth.com

I am not convinced that the MAPS is all it is cracked up to be.

Larry


Thanks for sharing Larry. The article was quite interesting. I agree with the author's major premise and most of his/her reasoning. It's been said before, MAPS is just a new twist to a technique that's been used for years. Indeed, it's not what it's "cracked up to be."

That article is pretty good! Here are some issues with it though:

1. The parts about the bank *having* to call the note are simply untrue. The servicers know what is happening in these deals and they often don't call the notes because it is not in their financial interest to do so. They lose their fee for servicing the note if they do so

2. The lease-option "solution" is also false. Any option violates the due-on-sale clause and has the same problems that a subject-to purchase, wholesale owner finance (WHOF or "mortgage assignment"), contract for deed, etc. strategy does. If you don't believe me see for yourself:

§ 1701j–3. Preemption of due-on-sale prohibitions

The simple fact is that there are very real risks with this strategy. Not only are you dealing with the traditional idiot sellers you are also dealing with non-credit-worthy buyers. Pairing the two of them together with or without a servicing agent is a ticking time bomb for a small wholesale fee. Do so at your own risk!

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

Hi, yes seems like old stuff with a new spin. 2 reasons to post, one, for the benefit of new investors, let's get our terms properly applied. Assumption and assignment are not the same thing. And, while a foreclosure is generally required to take title arising from a defualt, it is not necessary if the security agreement provides for a deed in lieu of foreclosure and a quit claim deed is attached and held in escrow, such being agreed to between the parties.

Bryan, glad you posted the due on sale clause info as that should clear up discussions here! As I have said, it is not required, it depends on the current rate and the terms.

Also note, it specifically described any lease grewater than 36 months AND CONTAINS an option to purchase. Seems like a good reason to have seperate agreements.

Thoughts: the use of a trust where the beneficiary remains, initially remains, but as we know, beneficiaries can later be changed and such are not made of public record and if required, are not filed to real property, just a line of thought there!

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by Financexaminer:
Also note, it specifically described any lease grewater than 36 months AND CONTAINS an option to purchase. Seems like a good reason to have seperate agreements.

You may want to read it again Bill:

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

The passage above says NOT containing an option to purchase. ANY option to purchase violates the due-on-sale clause regardless of whether or not it is exercised. Without recording the option I have no idea how the lender would ever know about it, but it violates the clause nonetheless. This is all really academic because the lender's servicer is the entity that would know about this and they aren't going to exercise the option to accelerate for reasons stated above.

It is good to have separate agreements to keep the tenant/buyer from having equitable interest in the property which would necessitate a foreclosure if the guy in the robe decided such interest existed through "rent credits" or some other substantive reason.

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

HI all,

There is some terrific info above and like Carlos, this is my first post. I have a couple of additional questions.

The way I understand mortgage assignment, the seller is assigning the payment to the new buyer. He is deeding the property to the new buyer and the seller is still "of record" with the mortgage company.

For a seller to go this route it is probably his best worst option, especially if he is underwater from an equity standpoint. His alternatives are few...traditional sale means cash out of pocket which the seller probably doesn't have, a short sale which half result in a foreclosure anyway...they go into foreclosure and take the "atomic bomb" FICO hit, or...they assign the payment.

An unsellable house to a probably unloanable buyer.

I understand the contract to assign the mortgage, with the new buyers name on the deed, insurance and title insurance can be done.

My big question is if I am trying to do a deal with a seller (I'm not a licensed realtor or mortgage pro, just an investor) how do I get the option to purchase that property for the most minor conveyance possible...in Florida I believe that is $10 and then my ultimate goal would be to assign the contract to the new buyer, get paid an "assignment" fee, not represent either party in the transaction and help both parties get what they want in the process.

I am aware of the due on sale clause but my brother works for one of the largest mortgage servicers in the US and he says we aren't invoking that clause on a performing asset..meaning as long as the mortgage is being paid, they don't care.

What type of contract do I need with the seller to have a contractual and saleable interest in the property that gives me the most flexibility.

If anyone can point me in the right direction I would certainly appreciate it...thanks in advance!

Okay,, I'm gonna answer some questions that we all are picking our brains in on this.. I am doing the mortgage assignments and here are the things I look at. The banks are not interested in getting the house back, they don't want the debt in their books. Its not violating the due-on-clause sale, it will "trigger" the due-on-clause sale but you gotta make sure you explain that to the buyer. You asked what if the buyer default a a payment? You can always call the lender or check through their on-line loan servicing website to verify that payments are being made. If payments are missed, you have the right to foreclose on the property and get it back. In most cases, it would be preferable however, to call the buyer and try to resolve the situation. Or An alternative to foreclosure is to offer the buyer the opportunity to give you a deed-in-lieu of foreclosure. In other words, you can ask the buyer to deed the property back to you so that you don't have to foreclose on them and ruin their credit. In all cases if there is trouble..take the house back and quickly sell it.

You don't use any of your money to do a Mortgage Assignment. You are assigning the contract to sell it to the end buyer. There are two ways about it you can do what is call a Combo Plan. If a buyer can't be found in time for the mortgage assignment program, you can fall back to doing short sale to avoid Foreclosure.

To me this is a great way to find seller whose homes are not sellable or just been on the market way too long and has no luck and you can find a buyer that is not able to get a loan and you can help the buyer purchase the seller's home by having them to do the Mortgage Assignment Program and with the loan service part of the payment plan from the buyer.. The seller and the buyer will have a statement showing that the buyer is paying the mortgage on time, plus you can see it on-line as well. So, there are so many options on how to sell the home just gotta know those options and give the seller those options to pick. But know your contracts and read them out to them. Disclose at all times. To me, Mortgage Assignment may be just another name but this is a program to help those whose having no luck selling their home and those who have a great paying job but have bad credits, they can be part of this program to help repair their credits.

I figure I get involve and share my viewpoints. I like it and I will keep doing this in Texas.

Well Lorelie, your mentioning the deed-in-lieu-of-foreclosure got you a vote!

And first folks, I see I didn't mention it the first time, but what me to click this thread was "Mortgage Assignment".

Guess I can mention this, but doubt anyone will care!

A mortgage is not ASSIGNED ina sub-2 nor in any other arrangement by the seller. The seller can not ASSIGN the mortgage only a mortgage holder, note holder or the Holder in Due Course can assign the instrument and obligation that goes with it.

ASSUMPTION is the correct term. The seller allows the assumption of the debt and carries the balance, together with interest along with the covenants of the obligation by the buyer and it is done as a matter of equity as you would in a contract for deed, from a lending stand point. So, assignments are done by note holders, assumptions by sellers and buyers. If you go to a bank and say I want to assign my mortgage, the banker will look at you like you really don't know what you're talking about and if you lack the knowledge of knwing what you are really doing, what else do you not know?

So, let's impress the bank at the beginning and tell them you want to do an assumption.

Next, 36 months comes from a time frame generally accepted in banking not from any stead fast rule or law. The governing requirements will be that which are in writing in your note and security agreements. Either way, they are optional and the due on sale is not something a lender is generally required to do, unless there is an agreement between the note holder and loan servicer to follow such events of default to be cured by foreclosure without other consideration.

When you do a sub-2 you should use a deed in lieu of foreclosure agreement as a cure for events of default, if your attorney is doing it another way and it is not against state law, your attorney screwed up! A deed-in-lieu is used when funding is accomplished with amounts of equity, not a cash loan. Using a deed-in-lieu as a means to secure collateral under a cash advance loan will get you in trouble if your borrower used a different attorney than the one who thought it was acceptable.

An option can be used, and I suggest doing os as a seperate agreement always, without any problems what so ever with any due on sale provision, at a certain point in time (like at the end of the lease term and such date can be reasonably be extended under certain events). The Option can be constructed as a sale agreement, except in Texas (might be some other states too)where contracts must be drawn for no longer than six months or a year and then renewed.

Three things to remember about seller financing is that you can do anything that is not illegal, or that would put either party under circumstances that would be unfair considering the expertise and knowledge of the parties and considering who drafted the agreements. (The later is where issues of preditory lending can surface. The flip side of preditory lending is taking advantage of some little old lady who was selling her home and some slick talking investor talked her into financing the deal, we could call that preditory buying or borrowing.) Thirdly, you should know what is customary in the area you are dealing in. While you can do anything that is not illegal and does not take undue advantage, doing something so wild, so crazy, so unique or unheard of will likely (very likely) put the schemer at a disadvantage in court if it ever gets there.

So, when you go to your attorney to do your next sub-2, tell the attorney you need an assumption agreement, not an assignment agreement.....

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Wrong answer about the Mortgage Assignment program.

We, as a buyer are assigning the contract to the buyer for the seller. The seller is not doing anything but transferring the deed to the new buyer. The whole thing of what you explain, Financeexaminer is far from what Mortgage Assignment Program is. This is like a sub2 but with a better program for people who are "unsellable" and for people who are "unloanable" to get a house.
What is a Mortgage Assignment?
The sale of a home where the loan(s)/lien(s) are assigned to a buyer in exchange for hte deed (ownership)..... Although, again I say, although, virtually no loans are "assumable", anyone can make payments on anyone else's mortgage and as long as those payments are made, the lender will consider the loan to be performing.. you ready that NO LOANS ARE "ASSUMABLE"....
In Mortgage Assignment Sale, the buyer agrees to make payments on the seller's mortgage going forward in exchange for ownership of the property..

That my friend, is what a Mortgage Assignment Porgram is.

Thanks for the information (LOL) You had some good info up there and glad you pointed out the deed-in-lieu-of-foreclosure.

I really don't care what program it is. Yes, contracts are assigned, mortgages are assigned as I stated.

And I won't even suggest you read my profile....I have so much to learn about all this fancy financing stuff, contracts and how to do these really complicated investor real estate deals, you know, how to structure them and which document goes where....bogles my mind.

I'd give you another vote, but I'm out of ammo! Good luck

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com