Owner Finance... I am confused Help Please!
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9yI'm also now confused....
The owner can't really owner finance to someone- they don't own the house to sell, the bank owns $135k of it
A wholesaler brought you this property
Wants you to pay $12
And then wants you to find an end buyer
And then the owner will sell to that end buyer as owner financing? They won't let you just transfer the loan over without a new buyer qualifying for a loan....
And what part are you getting paid for if you're paying 12k?
28 Replies
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes9y
I'm also now confused....
The owner can't really owner finance to someone- they don't own the house to sell, the bank owns $135k of it
A wholesaler brought you this property
Wants you to pay $12
And then wants you to find an end buyer
And then the owner will sell to that end buyer as owner financing? They won't let you just transfer the loan over without a new buyer qualifying for a loan....
And what part are you getting paid for if you're paying 12k?
- Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes9y
I'm with Natalie on this one, it's not owner financing if they already have a loan they must pay back first.
To answer your question, no you can not transfer a loan like that, that is called "assuming" the loan and to my knowledge the only program that lets you do that is a VA loan.
So are you saying they want you to put down 12k to hold the deal for the wholesaler to find someone for you? It seems like there is an extra piece to this puzzle that doesn't belong.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Natalie Kolodij:
I'm also now confused....
The owner can't really owner finance to someone- they don't own the house to sell, the bank owns $135k of it
A wholesaler brought you this property
Wants you to pay $12
And then wants you to find an end buyer
And then the owner will sell to that end buyer as owner financing? They won't let you just transfer the loan over without a new buyer qualifying for a loan....
And what part are you getting paid for if you're paying 12k?
Thanks for your input. I am sure they are not telling me everything because they insist for me to bring only 12k to the closing table because according to them it will be more cost efficient to me so I wouldn't have to bring the entire balance to the closing table. According to them I should only worry about the closing and the repair costs. They claim that I will work with their title company and they will assist me in transferring title to the end buyer that I bring. I'm not sure how this works or if it's even possible. They claim the seller will transfer title at closing. I think I should just walk. It's too complicated
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes9y
It sounds sketchy to me
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Nicholas Covington:
I'm with Natalie on this one, it's not owner financing if they already have a loan they must pay back first.
To answer your question, no you can not transfer a loan like that, that is called "assuming" the loan and to my knowledge the only program that lets you do that is a VA loan.
So are you saying they want you to put down 12k to hold the deal for the wholesaler to find someone for you? It seems like there is an extra piece to this puzzle that doesn't belong.
I want to buy the property and flip it but the conditions that are attached to it are too complex. They only want to go the route of "owner Financing " My concern is how will I purchase a house with a balance of 135k for 12k with no other conditions attached. It's bizarre and they also claim it's another form of "creative investing". I've not signed yet so I'm honestly trying to be informed before I get into something like this. Thanks.
- Investor · Wakefield, MA · Member since 2016 · 107 posts · 71 votes9y
Run. Not a single thing about this sounds right. It seems like they're taking advantage of your knowledge gap here.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
Ask for an owner and lender estoppel letter. Ask the attorney who is handling this to put the details on his/her letterhead. That will clear everything up. Set a 48 hour deadline, and tell this to all parties involved.
If they don't perform, then you know to walk away.
- Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes9y
Well @Azah Che you are very smart to ask questions, I think this is where a lot of people go wrong. They just don't ask any or don't ask enough. Granted I am sure that I am missing some things as well about your situation, but it sounds like they want you to pay a fee to the wholesaler and then "hope" that they is able to get the place sold. Then you are hoping to get the title of the home after its sold. Any realtor would tell you this is probably a scam that they are running with calling it "owner financed" to make it seem like everything is under the table.
Please just cease communication with them, I wouldn't even bother to respond back to them. Honestly if I knew everything about it, i would try to find a way to report them.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Cosmo Iannopollo:
Run. Not a single thing about this sounds right. It seems like they're taking advantage of your knowledge gap here.
I think so too. Thanks.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
I encourage you to check with your own attorney to get a lender's estoppel letter, owners affidavit and make sure this is legit. It may be, I don't know. I've done a similar deal in a short sale, but you need representation on your side. #1 is to ask for the title company or attorney to put the 'term sheet' on the attorney's letterhead, with a scanned/signed copy. They will do this or you need to walk away.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Nicholas Covington:
Well @Azah Che you are very smart to ask questions, I think this is where a lot of people go wrong. They just don't ask any or don't ask enough. Granted I am sure that I am missing some things as well about your situation, but it sounds like they want you to pay a fee to the wholesaler and then "hope" that they is able to get the place sold. Then you are hoping to get the title of the home after its sold. Any realtor would tell you this is probably a scam that they are running with calling it "owner financed" to make it seem like everything is under the table.
Please just cease communication with them, I wouldn't even bother to respond back to them. Honestly if I knew everything about it, i would try to find a way to report them.
That's right. I'm really grateful to be part of this forum. I'm learning everyday. As said I'm going to walk because something is missing . Thanks
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Chris Martin:
I encourage you to check with your own attorney to get a lender's estoppel letter, owners affidavit and make sure this is legit. It may be, I don't know. I've done a similar deal in a short sale, but you need representation on your side. #1 is to ask for the title company or attorney to put the 'term sheet' on the attorney's letterhead, with a scanned/signed copy. They will do this or you need to walk away.
Thanks for your advice. I really appreciate.
- Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes9y
It sounds very sketchy and I wouldn't pay a penny without meeting with the title company in person. It almost sounds like a wholesaler has a subject to deal under contract and are trying to pawn it off on you. Be very cautious if you decide to try to pursue this. To sketchy for me, I would just move on to the next deal.
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
@Azah Che I think there is a hefty transfer tax in your state that would be in play twice, once when you bought the house and again when you sell it. They may be trying to minimize the tax. However, if you can't get clear title, there is no point in pursuing the transaction anyway. I'd have a real estate attorney take a quick look at it to see if it is legit.
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
@Natalie Kolodij Just a small but significant point. The bank does NOT own any portion of the property. They have a secured interest that they have to effect a foreclosure to enforce. The owner can do what they will with the property. It is then up to the bank, if they find out about it, and if they care about it, to issue a "corrective notice" or begin a foreclosure action to protect the money they have invested (the loan).
This information is just for clarity so people can make the right decisions, and is not intended to imply one action or the other is the correct path for these circumstances.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Account Closed:
@Azah Che I think there is a hefty transfer tax in your state that would be in play twice, once when you bought the house and again when you sell it. They may be trying to minimize the tax. However, if you can't get clear title, there is no point in pursuing the transaction anyway. I'd have a real estate attorney take a quick look at it to see if it is legit.
Ok thanks. I will definitely have my lawyer look over it.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes9y
Thanks @Account Closed I understand how mortgages work.
My point was just that the owner isn't in a position to just owner finance the home as the bank still has an interest in in I guess is a better wording.
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
@Natalie Kolodij and @Azah Che
Okay, I wasn't going to get this detailed but:
The transaction is likely perfectly legal. These are the only kind of transactions I've done for the last twenty years. Some call it Owner Financing some call it Subject To. There are other terms I won't get into here. The transaction is likely that a wholesaler found someone who either can't or doesn't want to list with a real estate agent. The property probably has a lot of rehab hence the $45,000 in repairs that the sellers are afraid to tackle or can't afford. They still want to sell.
So, the wholesaler puts the property under contract and finds a buyer. The buyer takes the property "Subject To" the existing financing and takes over the existing loan, but does not assume it (assuming is a legal term and requires written permission from the bank). There is no bank qualifying and credit isn't an issue. Since the wholesaler put the entire transaction together, they expect to be paid. They split $10,000 of the $12,000 the buyer is bringing to closing with the seller. So, the seller gets $5,000 and the wholesaler gets $5,000 and $2,000 goes to Title and closing. I have always been the buyer and flipped or cash flowed the property. I have not been the wholesaler. All loans these days by banks have a Due on Sale clause. When ownership transfers, the bank MAY call the loan due. The bank is not REQUIRED to call the loan due. I won a court case on this very issue by pointing that out to my attorney and the judge. The attorneys were impressed. (I am not an attorney.)
My reason for hesitation on this transaction for Azah is that she needs to do her "due diligence" before jumping into it. It has to be done properly to be legal. I have not seen the Title report and I don't know the people involved, so I can't gauge the relative safety of the transaction.
If the Title is clear, I would jump on it and do these all day long. I would buy it in an LLC and record the Deed so it shows on Title. I would do minimal work on it, bring the arrears current if necessary, pay any back taxes and sell it as a "Minor Fixer" on a Wrap getting probably $25,000 down. I would carry the note. I would look on Rentometer and make the mortgage payment to my buyer a few hundred dollars more than what it would rent for and calculate the mortgage on a 30 year fixed while collecting the info necessary to be compliant with Dodd-Frank.
Or, I would fix it up and sell it if I was looking for "quick cash".
The questions isn't whether it is called "Owner Carry" or "Subject To" but rather how to properly structure the transaction so that all parties are protected as best as possible. I think she needs some training on that part, that's all.
- Investor · Memphis, TN · Member since 2016 · 549 posts · 286 votes9y
@Azah Che never fall in love with a house/deal. If it does not feel right then walk away. Everything about this sounds confusing and something is missing. Move on to the next deal.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Account Closed:
@Natalie Kolodij and @Azah Che
Okay, I wasn't going to get this detailed but:
The transaction is likely perfectly legal. These are the only kind of transactions I've done for the last twenty years. Some call it Owner Financing some call it Subject To. There are other terms I won't get into here. The transaction is likely that a wholesaler found someone who either can't or doesn't want to list with a real estate agent. The property probably has a lot of rehab hence the $45,000 in repairs that the sellers are afraid to tackle or can't afford. They still want to sell.
So, the wholesaler puts the property under contract and finds a buyer. The buyer takes the property "Subject To" the existing financing and takes over the existing loan, but does not assume it (assuming is a legal term and requires written permission from the bank). There is no bank qualifying and credit isn't an issue. Since the wholesaler put the entire transaction together, they expect to be paid. They split $10,000 of the $12,000 the buyer is bringing to closing with the seller. So, the seller gets $5,000 and the wholesaler gets $5,000 and $2,000 goes to Title and closing. I have always been the buyer and flipped or cash flowed the property. I have not been the wholesaler. All loans these days by banks have a Due on Sale clause. When ownership transfers, the bank MAY call the loan due. The bank is not REQUIRED to call the loan due. I won a court case on this very issue by pointing that out to my attorney and the judge. The attorneys were impressed. (I am not an attorney.)
My reason for hesitation on this transaction for Azah is that she needs to do her "due diligence" before jumping into it. It has to be done properly to be legal. I have not seen the Title report and I don't know the people involved, so I can't gauge the relative safety of the transaction.
If the Title is clear, I would jump on it and do these all day long. I would buy it in an LLC and record the Deed so it shows on Title. I would do minimal work on it, bring the arrears current if necessary, pay any back taxes and sell it as a "Minor Fixer" on a Wrap getting probably $25,000 down. I would carry the note. I would look on Rentometer and make the mortgage payment to my buyer a few hundred dollars more than what it would rent for and calculate the mortgage on a 30 year fixed while collecting the info necessary to be compliant with Dodd-Frank.
Or, I would fix it up and sell it if I was looking for "quick cash".
The questions isn't whether it is called "Owner Carry" or "Subject To" but rather how to properly structure the transaction so that all parties are protected as best as possible. I think she needs some training on that part, that's all.
Thanks for your advice. I will do my due diligence and make sure Title is clear and there are no liens on the property. Thanks for the details.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes9y
@Account Closed it is not completely clear what they have planned, but I think with proper clarification and legal review of the contract, you are probably ok. I know someone who entered into a similar deal a couple years ago as the seller. In her case, the buyer was unable to find someone to sell it to. They ended up renegotiating the contract and giving her (the seller) less money. It was a crappy deal for her, but she was stuck because the loan was in her name. That is why I am saying deals like this can be bad for the seller.
I personally don't think "Subject To" should be legal. The person who purchased the home through the bank signed a 100 page mortgage document. Then some wholesaler takes over rights to the property with a four page contract that leaves the seller holding the bag if something goes wrong. The seller in most cases doesn't understand what they are agreeing to. Compare it to a car loan and I cannot even get title to my car until after the loan is paid off. Why should a house be different?
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Joe Splitrock:
@Account Closed it is not completely clear what they have planned, but I think with proper clarification and legal review of the contract, you are probably ok. I know someone who entered into a similar deal a couple years ago as the seller. In her case, the buyer was unable to find someone to sell it to. They ended up renegotiating the contract and giving her (the seller) less money. It was a crappy deal for her, but she was stuck because the loan was in her name. That is why I am saying deals like this can be bad for the seller.
I personally don't think "Subject To" should be legal. The person who purchased the home through the bank signed a 100 page mortgage document. Then some wholesaler takes over rights to the property with a four page contract that leaves the seller holding the bag if something goes wrong. The seller in most cases doesn't understand what they are agreeing to. Compare it to a car loan and I cannot even get title to my car until after the loan is paid off. Why should a house be different?
why only look at it from a negative side on the sellers part? Why not look at it as the buyer helping the seller avoid foreclosure and staining their records as well? This was a rental property and the tenants abandoned it. The owner being an older lady and not having enough money to cover these extra payments has decided to go this route. It is true that there are unscrupulous people out there but I am not one of them and besides I want to make money by flipping this house.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes9y
Originally posted by @Azah Che:
Originally posted by @Joe Splitrock:
@Account Closed it is not completely clear what they have planned, but I think with proper clarification and legal review of the contract, you are probably ok. I know someone who entered into a similar deal a couple years ago as the seller. In her case, the buyer was unable to find someone to sell it to. They ended up renegotiating the contract and giving her (the seller) less money. It was a crappy deal for her, but she was stuck because the loan was in her name. That is why I am saying deals like this can be bad for the seller.
I personally don't think "Subject To" should be legal. The person who purchased the home through the bank signed a 100 page mortgage document. Then some wholesaler takes over rights to the property with a four page contract that leaves the seller holding the bag if something goes wrong. The seller in most cases doesn't understand what they are agreeing to. Compare it to a car loan and I cannot even get title to my car until after the loan is paid off. Why should a house be different?
why only look at it from a negative side on the sellers part? Why not look at it as the buyer helping the seller avoid foreclosure and staining their records as well? This was a rental property and the tenants abandoned it. The owner being an older lady and not having enough money to cover these extra payments has decided to go this route. It is true that there are unscrupulous people out there but I am not one of them and besides I want to make money by flipping this house.
I gave a specific example of someone I know who was taken advantage of, so it does happen. I wasn't calling you unscrupulous or saying you would do the same thing. The problem is no regulation, so it leaves the door open for problems. Wholesaling in general lacks any type of regulation or ethics standards and sadly the old, desperate, less savvy people are the ones who get taken advantage of.
- 9yAzah CheSilver Spring, MD · Member since 2017 · 33 posts · 1 voteOP
Originally posted by @Joe Splitrock:
Originally posted by @Azah Che:
Originally posted by @Joe Splitrock:
@Account Closed it is not completely clear what they have planned, but I think with proper clarification and legal review of the contract, you are probably ok. I know someone who entered into a similar deal a couple years ago as the seller. In her case, the buyer was unable to find someone to sell it to. They ended up renegotiating the contract and giving her (the seller) less money. It was a crappy deal for her, but she was stuck because the loan was in her name. That is why I am saying deals like this can be bad for the seller.
I personally don't think "Subject To" should be legal. The person who purchased the home through the bank signed a 100 page mortgage document. Then some wholesaler takes over rights to the property with a four page contract that leaves the seller holding the bag if something goes wrong. The seller in most cases doesn't understand what they are agreeing to. Compare it to a car loan and I cannot even get title to my car until after the loan is paid off. Why should a house be different?
why only look at it from a negative side on the sellers part? Why not look at it as the buyer helping the seller avoid foreclosure and staining their records as well? This was a rental property and the tenants abandoned it. The owner being an older lady and not having enough money to cover these extra payments has decided to go this route. It is true that there are unscrupulous people out there but I am not one of them and besides I want to make money by flipping this house.
I gave a specific example of someone I know who was taken advantage of, so it does happen. I wasn't calling you unscrupulous or saying you would do the same thing. The problem is no regulation, so it leaves the door open for problems. Wholesaling in general lacks any type of regulation or ethics standards and sadly the old, desperate, less savvy people are the ones who get taken advantage of.
Yeah I understand.
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
@Joe Splitrock I did NOT say that I call the two the same. I said "some call it Owner Financing some call it Subject To", for a reason. I also said "There are other terms I won't get into here."
"Some" is not me. I did not say "I" for a reason. Don't put words in my mouth. I am very precise and touchy about what I say and how I say it.
Also, the question was about the transaction, which I answered, not about the risks to the seller, which was not asked.
You say "I personally don't think "Subject To" should be legal." Fine. But, it IS legal. I don't think horse sh*t should stink, but it does. ;-) Nope, not agitated, just precise.
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