Can bank block bringing loan current for Sub2 deal?

62 Replies

Hi guys, 

I have a post one page back with all the boring details on this Sub2 opportunity. Seller is willing to deal, and I think I have a 85% shot at getting it. Here are my questions...

1) Can the bank NOT let me bring the loan current and still send to auction? Or if I bring the loan current the only thing left for them to do is possibly call the loan due? This home is scheduled to go to auction in about a week. I plan to get it under contract tomorrow with a 5 day inspection/due diligence contingency. 

2) Realtor is trying to double dip on commission. I don't have a buyer's agent and he is trying to get 6% on a $450K sale and leave the owners with nothing. My thought is he gets 3% (I am paying his commission) and he'll like it. Will there be a problem with this? 

3) I give him the $100 earnest money when we sign the contracts? Or that goes to escrow? Then I find a title company and schedule the closing?

If it is going to auction the only hope will be to cash out the lender. If a realtor is involve they need to get paid.

Joe Gore

Your plan is to take over all future payments right?

Then I do not believe that is a sale so no commissions would be paid.

Once the loan is in default it has been "accelerated" prior to filing foreclosure.  The bank does Not have to accept just he amount in arrears.  They can require full pay off if hey want.  The realtor has a contract for 6%.  It's up to him to reduce it if he wants.  Play hard ball if you want.

@Eddie T.   In a sub2 title changes hands, so yes it is a sale.

@Joe Gore  @Wayne Brooks  

First off let me be clear, I'm not trying to cut the realtor out of anything. I want him to get a commission, and although I found the seller not from the MLS, it happened to be listed when I researched it. So he gets a commission. But 6% and the seller said he only showed up to put a sign in the yard? Never seen him since? And even when I walked the property today, the realtor decided not to show up.

Let me be up front with my question. This house is for me to live in, not flip. It allows me to get in a POS house on one of the best blocks in my city. A $130K renovation will turn this into a $720K + home. It will be a $420K loan amount after I make up $40K in back payments. So the question is...

Should I get the house under contract, get a release of information signed, and try to flat out talk to the bank and ask them will bringing the loan current and paying all penalties and fees stop the foreclosure?

@Curtis H.,

I don't think the subject2 will work if it is going to auction but you, and the seller might want to get on the phone with the bank, and the bank might let you assume the loan, but it will depend on your credit and income.

Joe Gore

@Curtis H.  

In California, a borrower has until 5 days prior to the date of sale to reinstate the mortgage.  At 5 days prior to sale, the right to reinstate expires.

If you're more than 5 days out, you should be able to bring the mortgage current.  However, I don't know that I would broach the idea of Sub-2 to the lender.  I don't know the specific situation or the financials around this.  However, this is already a non-performing asset for the bank, so there is no downside for them to call the note due on a Sub-2 transaction.  That is doubly true with them being this close to auction.  It will also depend on what bank you're dealing with.  There are a lot of moving pieces here.  However, if you like the terms, I say go for it!!

@Hattie Dizmond

Boy I hope this is true! That would be great. I'm not overly concerned with them calling the note due, as I do qualify for a loan for what the balance would be. This is just allowing me to get into the home without all the red tape, and there was no time to close on a traditional loan. This thing is gone on August 2nd. 

The loan company is in Oklahoma actually and it seems like a smaller establishment. 

My fear is of course reinstating the loan (since I don't tell them about Sub2) and they don't stop the auction. Now if what you are saying is absolutely true, and I have up until 5 days of the sale date to reinstate the loan, I am in the clear. I just want someone else to verify that as well.

From the California Association of Realtors site...

Up to 5 business days before the Trustee’s Sale, the borrower may reinstate the loan (bring the loan current) by paying the missed payments plus allowable costs. Note: If the Sale is postponed the date that the borrower may reinstate is postponed accordingly. (Cal. Civ. Code § 2924c(e).)

Wait, if the sale is September 2nd, and there is a holiday on the Monday before the sale, that THIS Monday (in 2 days) is the last day to reinstate the loan? Oh shoot....

And thank you @Hattie Dizmond !

That is crucial information. With the holiday weekend before the sale, I lose a business day! I now have to reinstate the loan by MONDAY in order to avoid the sale. 

So now my plan is to have the seller sign ATRI on Sunday, and have him call the bank bright and early Monday and tell them that he is sending a cashier's check for the reinstatement amount that week, and to please agree to postpone the sale date and put it in writing. I hear they will postpone it if they know payment is coming sometimes. If they won't deal, we either pay it anyway, or just let it go.

Awesome!  I love your enthusiasm & willingness to take massive action.

Good luck and keep us posted.


@Wayne Brooks   @Joe Gore @Hattie Dizmond  

Two more questions....

1) When I call the bank monday after getting authorization, who do I tell the bank I am and how the seller will be able to pay the reinstatement, and future payments? My thought is, if they know someone with credit worthiness is assuming the loan, they may be more likely to stop the sale, and would at least let me know they would call the loan due if they weren't on board with that. I almost would just rather know what they are thinking than hoping they won't call it. 

2) Let's say I call Monday morning and the bank says "We aren't stopping the sale". That means I have till the end of business that day to get them the reinstatement amount. Seeing as I would have to close with a title company (maybe I don't) wouldn't it be impossible to make that happen? And do I need to have him sign the contract with a notary? Or is that not necessary?

In most places the deed signature has to be notarized, in order to be recorded.  Read the statute yourself, regarding the reinstatement.  Realtor Association statements can be general in nature, not apply to your situation, or just dead wrong sometimes.  You would want to get some type of written confirmation allowing a reinstatement, good luck in one day, since you'll likely be wiring the funds Monday.

@Wayne Brooks

Thanks for the quick reply. I have seen foreclosure attorneys in CA echo the same thing in regards to reinstatement 5 business days before the sale date. 

What about talking to the bank? Who do I say I am and how the seller is paying? Can't say friend (arms length) can't say foreclosure specialist (legal trouble). I agree all this is HIGHLY unlikely to happen in a day. But if we can get them to simply agree in writing to postpone the sale date and allow us "X" amount of days to reinstate the loan, that's all the time we need. 

I'm going to respond in reverse order...

2)  If the mortgage is brought current before the reinstatement period expires, they legally have to stop the auction.  At this point, with the work the bank has already done to file foreclosure and get it to this point, my normal thought process doesn't apply.  Normally, I would say banks don't want to own more property.  However, with this one this far along, all bets are off.  You don't have to close to bring the loan current, unless it's the funding issue you need closing for.

1)  Since you are where you are in this process, I would just tell the bank exactly who you are.  I would explain what your plan is and just be completely transparent with them.  You're going to want to talk to the highest ranking person you can reach in the area that handles loan modifications/defaults.  I would have a personal financial statement ready, just in case they appear to be open to the ideas you're laying out.  You'll need it for closing with a new mortgage anyway.  Regardless of what happens, you absolutely have to get any positive response from the bank in writing.

@Hattie Dizmond

When you say "personal financial statement" what does that imply?

I have the following ready to go...

* Credit report showing my score above 740

* Current Savings account statement showing I have plenty in reserves

* Preapproval letter that is still valid for more than this home is worth

Would that be enough? And even with all this, I STILL would rather not have the loan in my name. That's what makes this deal work. Having a home and not having a new loan on my credit that allows me to continue to tie up other properties. If they say they are going to call the loan due, I think I would walk.

@Wayne Brooks  @Joe Gore 

  IN California the trustor has the right to bring the note current 5 days before the sale that law has been on the books for ever... Joe is not correct in his statement

The lender may also accept payment right up until the day of the sale but they are not obligated as stated 5 days or less from sale.

@Wayne Brooks  

  In CA not only does the deed need to be notarized  the Notary must also get a thumb print of who is signing the deed. 

@Jay Hinrichs

Thanks and I feel comfortable knowing that I have until end of tomorrow to work this out. However, let's say I talk to the bank, and hound them and hound them, but they give me the run around, like banks often do. Does the homeowner have any legal recourse since the bank did not respond? 

@Curtis H.  

  your not dealing with the bank your probably talking with the Trustee who then needs to talk to the bank.  who knows  people sue over these things every day.

good luck  if you want the property you should have a redemption figure already and be ready to wire as Wayne stated

This used to be my cookie cutter back in the day. I've done well over a hundred of these, but none lately, so things may have changed and it varies from state to state.

Mine was pretty systemized, you need to get an authorization from the seller to act on their behalf. Then call and get the payoff so you know your numbers. Then get with the atty and get a reinstatement amount (this is the back pays plus the atty fees). I never told them I was assuming the loan, just reinstating it.

It was pretty routine, the bigger outfits around here knew me I was in there so much. The atty will be used to this stuff. The bank doesn't really care. Rarely are the people handling it invested in the outcome, they're just doing what they're told in their little box. That, of course varies a great deal with who hold the mortgage.

Hardest part was getting reinstatement amounts from the bank, they move slowly, it takes a few days to get the number. Once we had that, it was just dropping the check off at the atty office.

As far as paying up and stopping the sale, I've been there the day of the sale to stop it before. That's pretty stressful, though, the attys are crazy busy and many are already at the courthouse, etc. Better to do it beforehand.

Realtor fees are up to you, I've paid some and fought some. The ones that want 6% when they didn't earn it are the lousy ones at what they do. The guys that earn a good living don't try to squeeze every dime out of every listing when they didn't earn the fee. You need to read the sales contract to see the wording. If it were me I'd call them up and say "Hey, this thing is gone in a week, you'll make $0 if that happens. I'm willing to try to see if I can pull this thing out of a hat, but the deal isn't worth my time if there's a $12k ($25k) real estate commission in there. I didn't find them through you, but want you to get compensated for your efforts even though you didn't sell the house- would you take $5k for the hours you've done so far and Ill do everything from here?"

Never know. I had one be such a jerk I flat out didn't want him to get paid so went around him. His recourse is against a seller in foreclosure, not you. You don't have a contract with him. He can muddy the waters some, but not much he can really do in the end except sue his client. At least thats how it works around here.

He might do more over $25k than ones around here would for the usual few grand commission, but I'm not on board with this mentality of him deserving a full commission on a house he didn't sell just because he talked someone into the listing and didn't do anything else. I tell them that, too. I think I did something like a Lease Option until the listing was up on mine. He pissed and moaned, but couldn't do much in the end, which was very gratifying after the way he acted.

I usually don't like spending money on houses I don't own, but sometimes Ill take those risks if it makes sense to do so. Just need to check the wording of the contract and see what creative workaround works best (loan them the money to reinstate, option it, etc). All kinda of ways to beat an agent at that game. I usually don't, but I also don't cower to their listing agreement and make sure they know that they take the money I offer or get nothing.

At the very least go get another agent to get the 3% and use it as a relationship builder make sure he knows he isn't getting that other 3% anyway if he doesn't take your deal.

@Curtis H.  

I completely understand, and the information you have should be sufficient.  My purpose in having you prepare your data for the bank is to 1) show them you are serious and 2) prove you have the ability to service this debt, regardless of whether the loan is in your name or not. 

Again, get to the highest level person you can find.

You guys are awesome. This is a great deal of help..

@Darrell Shepherd

When you call the foreclosure attorney, who do you say you are if you aren't some guy trying to take over the loan? Every time I called a bank/attorney in my experience they ask point blank. I just want to know what to say in the event I don't want them putting my real intentions in the records. 

And when you walk in with the reinstatement check (before everyone knew you), were you transparent about who you were? Or did they just never ask?

I think on this one I am with Hattie, too close to the deadline to be playing games with the bank and foreclosure atty. I need to let them know my intentions and if they want this loan in good standing for a long time, they will allow me to assume it. I was REALLY hoping to negotiate the reinstatement amount but in this case does that usually happen? If the amount is $40K to reinstate, and I say I have $30K ready to wire to them if they will accept it, does that happen often?

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