Subject to and Seller Financing in St. Louis

8 Replies

I want to take over someones property and then seller finance it to a tenant buyer in St. Louis Missouri. What will/should I expect to happen? 

-will the bank call the loan due? or just threaten. Will I be able to explain that the foreclosure process will be long and costly and that they should just hold off if I'm making the payments. Will they listen to reason?

Are there any better options with subject to? I'm looking to be as passive as I can. I've been told there is not much equity but he is willing to let go for nothing. Is there another option that might be better suited? I also thought about lease option. 

@Account Closed

I'm sorry if I did not make myself clear. The property is not in foreclosure. The payments are current and the guy who owns it is just "tired" of dealing with renters. I have the opportunity to take it over subject to. My question was, more simply, if I sell it to a tenant buyer and we close at a title company, will the bank be alerted and will they get involved? Or "should" I expect them to not take any action until they see a problem. And would the bank listen to reason.

The equity I was speaking of is that there is not much room between what the buyer owes and what the value of the property is. 

Hey @Drew Poniewaz sounds like a great opportunity if you can get into this property for nothing.  If you plan to seller finance his mortgage to another buyer I think you need to let the seller know upfront.  The seller's credit will still be on the line and if the new buyer defaults on any payments you don't want the seller coming back to you.

I would also contact the sellers bank - get the seller to authorize you on the account.  You want to make sure the loan is in good standing.  Get a copy of the note - here you will be able to see if it has a due on sale clause.  Then update the mailing address on file so the bank knows how to contact you about the loan.

If you want to learn more about subject to I'd recommend searching for "Michael Quarles subject to" he has quite a few podcasts on the topic and is well experienced.

@David Ounanian

On this property I'm speaking of specifically, I have had the conversation with the seller and if I decide to move forward with this, he does understand that his mortgage is still involved. If I seller finance it, it effectively takes him out of it because the contract between the new buyer and myself would state that I'm the "bank". That's where my concern of the bank being notified by, or being aware of, the closing. I would hope that the original mortgagor wouldn't necessarily just start the foreclosure process if the payment continues to come through. That's the part that I am stuck on. I have just gotten the property information from the guy and am planning on moving forward with the "subject to" but would love to seller finance them. Thanks for the Michael Quarles tip, I will check it out.

@Drew Poniewaz ok I think I understand you now - when you said foreclosure I assumed payments were being missed.  I think you are concerned with the "due on sale clause" right?

You should get a copy of the note and inspect the verbiage.  I'm attaching a screenshot of the "due on sale clause" that my note has on a property I just bought with a conventional mortgage.  See that it states "MAY require immediate payment in full".  I think it is unlikely to happen but you can protect yourself if you have the reserves for a down payment and a lender who can refinance the property in the time period given (in my case below its 30 days).

@Drew Poniewaz You do not need a title company to initiate a lease/option or land contract with your tenant/buyer, and there is no need to inform the lender.

If the lender finds out that the title was transferred to you then they may call the loan due, although that's very unlikely, as long as you keep the payments current. There is no way you can 'explain' to them that it would be costly and pointless to foreclose. But you do have several options if the loan is called. 

1. Your buyer could get a new mortgage and pay the old one out.
2. You could get a mortgage and pay the old one out.
3. You could bring in a partner to get a mortgage or lend the money privately.
4. Or you could sell the property to another investor who has the means and would like a turn-key investment property.