All Forum Posts by: Azah Che

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.

@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?

@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.

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.

@Mitch Messer is right.  This would be a sub2 transaction, but it looks like it won't need a 2nd.  Most likely the seller just needs $5k or $7k and the balance of the $12k is the wholesaler's fee. 

If the FMV is far above $135k, this sounds like a keeper to flip!

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.

@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.

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.

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.

Run. Not a single thing about this sounds right. It seems like they're taking advantage of your knowledge gap here.