Has anyone successfully transacted a "subject to existing financing" deal in Wisconsin?
My agent is telling me that it is impossible to deed a property in Wisconsin with existing financing on it, but I do not see why the seller could not quit claim the property to my LLC and I take over payment of the mortgage for 12 months until I can do a cash out re-fi.
I'd love to know how these deals make sense for a seller. Because the note is still in their name as well as the insurance but the title is with the buyer. What situations would a seller agree to do this? How do you sell it to them?
@Brant Jones the problem is that the seller has pledged his collateral to the bank and while it is technically possible to deeed a property, the title company will raise a red flag, because the lender is not paid off and has a lien on the title.
I have seen a lot of deals in the last 12 years, but never one of those..
Here is what I would do: a lease with an option to purchase. You will have a lease with the seller, so you can move in and do the repairs you want to do and you have the exlusive right to purchase for a set price and at a set time. Wisconsin has a state contract for that labeled WB-44.
The risk for the seller is that you screw up the construction. You are spending money one a property that is not yours yet.
So this is a possibility, but clean solutions are always the best. Why don't you just buy it with a hard money loan and then fix it up?
@Marcus Auerbach , great perspective!
The lease option is interesting, but I worry since there are already tenants in place how that would muddy the waters, legally, i.e. which "tenant" would the seller be evicting if things went sideways.
The hard money loan is an option, just looking at path of least resistance given the current state of affairs and potential for tenants losing their jobs, non-payment of rent, etc. The seller's current mortgage terms are more attractive than hard money terms, providing us more runway to carry the property if necessary.
@Brant Jones the tenant lease suboridnates to your master lease. If you break your lease you will not get evicted, you just simply violated the option contract and lost your option money. The tenants payment comes to you, so if they default that is your problem.
Bottom line, none of these come without issues, that's why you raerely ever see them. An outright purchase is just the way to go; I prefer bank money, if you start out family money or private money is probably the best, but if you are not in a position to guarantee repayment it's probably a bad idea.
I would love to hear from people who do Subject 2 deals. Is the property underwater? What are the circumstances that would warrant this type of sale. Lets say the mortgagee does not call the loan balance due in full on the transfer of title, how is insurance handled.
To deal with insurance I read that a Land Trust can be used to name the seller as the beneficiary, and the buyer as the trustee, with power to deal with all aspects of the property, including insurance. A new policy naming both the land trust beneficiary and trustee(s) as the policy loss payees satisfies most lender requirements. Not having done this yet, I am curious to hear from someone like @Jay Hinrichs on how this has been done in real life.