Newbie with Owner Finance deal.

[Azah Che]

Hello BP Family Azah here. So I've just put the first property that I'm going to rehab under contract. I'm excited but worried at the same time. The deal is structured like this, ARV $228k Repairs 45k owner has a loan balance of 135k, is willing to take a DP of 12k at closing and transfer title and according to wholesaler seller is willing to carry loan in her name until property is fixed and end buyer is found and then title company will work with me to get title for new buyer ...remember the $135 k loan balance on former owner? Yes that is my worry now. how do we go about this? My lawyer says he can work some terms into the contract that covers everyone. Advise please. Fam I need your help. Thanks.

[Mitch Messer]

Hi @Azah Che. We just did one like this late last year. You'll want to look into purchasing the property "subject-to" the existing $135K bank loan. There are resources here on BP on subject-to (Sub-2) financing. Check them out carefully and be absolutely certain your closing agent (title company?) has done a Sub-2 closing previously. If not, find one who has.

The bank loan of $135K will remain in place during your rehab. The seller will be secured by a second mortgage for the balance of their equity (after your $12K DP). You'll get written authorization from the seller to allow you to interact with the lender and to make payments directly to them. You'll also want to place a builder's risk insurance policy to protect your interests during the rehab.

Your new buyer will pay off the the bank loan and the seller second at the post-rehab closing. You'll get the spread, minus closing costs and agent commissions.