SUB 2 with VA loans

11 Replies

I am working in a military towm. Does anyone have any real experience with doing SUB 2 with VA home loans? More specifically, can it be do

I have never done a sub-2 with a VA loan. However, the correct way to do subject to deals is to have the owner quit claim the property into a land trust for "estate planning purposes". This is protected by the Garmin St. Germain Act. I have yet to be involved with a sub-to deal and have a bank call the loan on us.

if you can qualify pre qualify and the house qualifilys I don't see why there would be a problem

Originally posted by @Michael Otranto :
I have never done a sub-2 with a VA loan. However, the correct way to do subject to deals is to have the owner quit claim the property into a land trust for "estate planning purposes". This is protected by the Garmin St. Germain Act. I have yet to be involved with a sub-to deal and have a bank call the loan on us.

Everything you said is incorrect. Spend some time research how we work here on BP, when you tell people the "proper way" of doing something you need to be correct on a national level. Most with real knowledge here don't follow guru stuff and will often pounce on any guru method as well, especially when such can cause problems.

VA loans can be assumable, the borrower is still on the hook, you may not need to do a Sub-2 at all, just buy it.

Never use a quit claim deed in any sale transaction, Sub=to deals are done with Special Warranty Deeds. You don't need any trust.

The exemptions under the Act mentioned are to trusts and transfers dealing in estate planning matters, not simply to any trust.

Search here on BP "Due on Sale" you'll find that there are total misconceptions made by investors. If any lender accelerates maturity under this aspect your recourse is to sue to stop foreclosure or pay it off in some manner.

Yes, I worked properties around Army posts, I used VAs. Get to know your post housing folks. :)

As Bill was saying, watch what you say if you've never done one. I've done a bunch and still like to use trusts, but I'm guru trained and then some. Like he said, I learned a lot after the courses that wasn't covered.

Bill flies a little (lot) straighter than I do, so take his advice before mine. The transfer to the trust is just a smoke screen, it doesn't give you any true protection. You still have to figure out the insurance, and most don't like to insure trusts, and you have to keep your POA current, so stay in touch with your sellers (ask me how I know this).

The VA stuff prior to '86 was assumable, but those are pretty much gone now or so old it doesn't make sense to take them over. I don't know that a VA loan would be any different than any FHA loan. My understanding is that they're guaranteed by the Feds under their guidelines, but not serviced by them.

My only thought would be that the lender wouldn't worry about accelerating the loan because they know they'd get paid. I still don't see any major lender doing that, though. I used to work for a finance company and we'd make decisions on if we should do that (we did cars and discovered plenty of straw purchases) and never did on a loan that was paid well. If you couldn't handle that situation, you probably shouldn't be taking over their debt IMO.

Thanks for all the information. I don't see the need for the trust as it is just a smoke screen that affords no real protection. I would like to do some sub2 with wrap around mortgages as my area is full of opportunities of that sort. The wholesale investors are picking at every carcus in town so I think I'll go niche!

@Bill Gulley thanks for the tip!

@Darrell Shepherd it does appear that most banks don't exercise their "due on sale" clause. The VA can be a pain for other issues so I wanted to see if they work well in the case of sub 2s.

Overall, thanks guys! I hate getting guru advise as it always feels like fish oil tactics. I want my business defined by integrity. That said, I also want the upper hans! Lol

I've done plenty of them. You're biggest issue is that at some point in the near future, the seller is going to want to use the VA certificate again and you are going to have it tied up because their existing loan is taken subject to. So be prepared for having to pay it off in a few years, if for no other reason besides the fact that the seller will want to buy a new home down the road and you will be holding that up.

Also, when you buy a property subject to, go the traditional route of using a closing attorney (or title company, depending on the state), get title insurance, and the whole 9 yards. Then, to ensure you are not potentially walking in the gray area of hiding from the lender that the transaction has been done (some loan docs say that the borrow must notify the lender if the title transfers), send a letter to the address on record on the Deed of Trust or Mortgage (depending on the state) that title has transferred and keep a record of this. We have never triggered the due on sale clause after sending this letter and it is definitely nice to have that in your back pocket in case the seller flips out three years later, calls Legal Aid and starts spouting off that you were a party to loan fraud. When you show the letter that notified the lender, all of the sudden, that opposing attorney has very little to sink his teeth into. Plus, the fact that it was done at a closing firm adds more legitimacy.

BIGGEST drawback to the subject to is the fact that oftentimes you have to pay double in property insurance. If you try to replace the existing insurance and the VA loan is paying the insurance each year out of the escrows it is collecting, if they see a different name besides the borrower, they may cancel the existing policy and put a forced policy in place which is very expensive. Instead, usually the safest bet is to leave the existing policy in place and then pay for another policy that you pay for not in escrow. It's double paying of insurance but is often times cheaper than the alternative. We have also successfully gotten our policy to slide through and be updated on the file, especially in situations where insurance payments are not escrowed.

Originally posted by @Bill Gulley :
Originally posted by @Michael Otranto :
I have never done a sub-2 with a VA loan. However, the correct way to do subject to deals is to have the owner quit claim the property into a land trust for "estate planning purposes". This is protected by the Garmin St. Germain Act. I have yet to be involved with a sub-to deal and have a bank call the loan on us.

Everything you said is incorrect. Spend some time research how we work here on BP, when you tell people the "proper way" of doing something you need to be correct on a national level. Most with real knowledge here don't follow guru stuff and will often pounce on any guru method as well, especially when such can cause problems.

VA loans can be assumable, the borrower is still on the hook, you may not need to do a Sub-2 at all, just buy it.

Never use a quit claim deed in any sale transaction, Sub=to deals are done with Special Warranty Deeds. You don't need any trust.

The exemptions under the Act mentioned are to trusts and transfers dealing in estate planning matters, not simply to any trust.

Search here on BP "Due on Sale" you'll find that there are total misconceptions made by investors. If any lender accelerates maturity under this aspect your recourse is to sue to stop foreclosure or pay it off in some manner.

Yes, I worked properties around Army posts, I used VAs. Get to know your post housing folks. :)

if you are not using a trust to do a subject to, then, are you using a llc or your own personal name?

I've done both Troy, LLCs weren't around in my state until the mid-90s. :)

@Troy Michaels you can own real estate in any entity you please. I won't own it in anything other than a land trust. A lot of material has been written on land trusts and their benefits. It is true what you said about something being applicable on a national level. If I bought property in other states I would still go the land trust route because of it's benefits. As far as being "correct" or "incorrect" that's for people who want to teach courses. My deals being successful are what's most important. I have enough knowledge and experience so that I don't have to justify either to anyone. @Phil Pustejovsky brought up a lot of good technical points on what can happen down the line with taking a VA loan sub-to.

@Michael Otranto , you doing your business in a trust was not the issue, it's not the only proper way, which is how you presented your opinion.

Your business strategies, doing Sub-tos or your knowledge and experience being sufficient to make money has nothing to do with you posting on this site giving legal opinions of what federal law covers or what exemptions might be.

I'm sure many would be interested in your success. You can probably do so without getting into financial laws and regulations.

Many here police this site, when something is not correct we will comment as implications taken by newbies (80+% on BP) may act on incorrect advice or passing comments. That was the point, nothing about your business tactics or preferences. :)

No worries @Bill Gulley You're right that I didn't word that statement correctly. Instead of: "The correct way to this is x" I should have said "In my experience x has given me the best results". If I did come across a sub-to opportunity on a VA loan I would search for a partner to do the deal with. I'd rather have 50% of profitable venture than 100% of a problem.

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