All Forum Posts by: Kevin Sobilo

Quote from @Ken M.:

Quote from @Kevin Sobilo:

@Eric Miller, first off if you are asking this question you NEED a real estate agent. There are likely many more things an agent can help you with many of which you would not even think to ask.

A few things about your question:

1. Just because a seller (in this case a bank) does not wish to warranty the title doesn't mean the title is not "clear".

2. In most states the sales contracts used by realtors will by default make the contract contingent upon the seller providing "clear and marketable" title. This generally means that you can get title insurance on it yourself when you purchase it.

3. In many places (including my state PA), the sales contract used by realtors will specify the type of deed/title warranty the seller will provide. The typical default is a "special warranty deed" meaning they are only guaranteeing the title for issues that came into existence during their ownership.

Since the bank likely owned the property for only a VERY short period of time, that kind of warranty would not provide you with much protection at all anyways.

A "general warranty" deed would guarantee the title against any issues that came to exist at any time but those are not often used.

It sounds like you will receive a "quit claim" deed or similar where they simply transfer whatever interest in the property they have with no guarantees.

4. You asked what can cause a property like this to have a title issue. The foreclosure process can be messy and complicated. So, errors can occur. The type of error may depend on the state and the mechanism the use for foreclosures. In the east, lien theory states we use a judicial foreclosure and in most western states they use a title theory non-judicial foreclosure process.

In my state (PA) which is a lien theory state perhaps an interested party to the foreclosure is not served property with the notice about the foreclosure. Maybe its an estate and they don't notify the heir(s), administrator, or executor at the correct address. Errors in the process as small as that create a "cloud" aka uncertainty on the title because one of those parties could show up later on and contest the foreclosure as improper because of their lack of property notification. 

That is just an example of the kind of issue that may exist. MANY MANY other types of issues might exist having nothing to do with the foreclosure process.

5. Generally speaking, it would not be uncommon for a lender to sell a property without warrantying the title and that you as the buyer would buy your own title insurance as part of the closing and that the insurability of the title would be a contingency in the sales contract. 

In many states you get what is called a Special Warranty Deed. It basically says the bank will guarantee the deed from the date they own the property, but nothing earlier. Some liens survive a foreclosure sale. In the states I've dealt in, the trustee for the foreclosure has a "foreclosure title report" you can buy ($100 or so) which lists any liens they found in the pre-foreclosure process. They won't insure against those liens, but it does alert you to them, so you can negotiate them down with the lienholder if that is appropriate.

Yes! I mentioned a special warranty deed in my #3. 

In many places even a title search or foreclosure title report may not list everything. Real estate titles can be affected by so many things that its difficult to be 100% certain you know about all potential issues. That is why title insurance is important. If there was certainty about the title's condition insurance would not be needed. 

Even without the complication of a messy foreclosure process many title issues can exist for decades undetected. An unrecorded mortgage satisfaction for example. Or perhaps all owners of a property didn't sign the deed when the property transferred 50 years ago. So, many things can affect the title. 

You make a very good point that title insurance can often be purchased even with known issues but will exclude those issues from the coverage. You want to understand the risk of those issues and whether you want to take an action to deal with them such as a Quiet Title Action.

@James McGovern, I think most people gave up on carpet 10-15 years ago.

Today for rentals people love hard surfaces. The most in vogue flooring is property LVP but depending on the location and quality of rental people might use tile and hardwood as well. For B/C class properties sheet vinyl or peel & stick work as well.

In addition if you have original wood floors in an older home simply sanding and refinishing them is also a good option.

The key is hard surfaces are easier to maintain and more durable. 

@James McGovern, I think your post requires a bit more detailed explanation.

First off tenants are not squatters. Tenants have a rental agreement, which they may be in violation of whereas a squatter does not.

Second, I don't know which state law you are speaking about, but in most places even through an eviction/ejectment it is often VERY VERY difficult to collect on any monies awarded in the judgement. Its so difficult in many cases the landlord does not even attempt to collect on the debt. So, the amount awarded is often immaterial to a landlord. 

@Eric Miller, first off if you are asking this question you NEED a real estate agent. There are likely many more things an agent can help you with many of which you would not even think to ask.

A few things about your question:

1. Just because a seller (in this case a bank) does not wish to warranty the title doesn't mean the title is not "clear".

2. In most states the sales contracts used by realtors will by default make the contract contingent upon the seller providing "clear and marketable" title. This generally means that you can get title insurance on it yourself when you purchase it.

3. In many places (including my state PA), the sales contract used by realtors will specify the type of deed/title warranty the seller will provide. The typical default is a "special warranty deed" meaning they are only guaranteeing the title for issues that came into existence during their ownership.

Since the bank likely owned the property for only a VERY short period of time, that kind of warranty would not provide you with much protection at all anyways.

A "general warranty" deed would guarantee the title against any issues that came to exist at any time but those are not often used.

It sounds like you will receive a "quit claim" deed or similar where they simply transfer whatever interest in the property they have with no guarantees.

4. You asked what can cause a property like this to have a title issue. The foreclosure process can be messy and complicated. So, errors can occur. The type of error may depend on the state and the mechanism the use for foreclosures. In the east, lien theory states we use a judicial foreclosure and in most western states they use a title theory non-judicial foreclosure process.

In my state (PA) which is a lien theory state perhaps an interested party to the foreclosure is not served property with the notice about the foreclosure. Maybe its an estate and they don't notify the heir(s), administrator, or executor at the correct address. Errors in the process as small as that create a "cloud" aka uncertainty on the title because one of those parties could show up later on and contest the foreclosure as improper because of their lack of property notification. 

That is just an example of the kind of issue that may exist. MANY MANY other types of issues might exist having nothing to do with the foreclosure process.

5. Generally speaking, it would not be uncommon for a lender to sell a property without warrantying the title and that you as the buyer would buy your own title insurance as part of the closing and that the insurability of the title would be a contingency in the sales contract. 

@Account Closed, rental ordinances like that are common where I am in northeast Pennsylvania BUT the fees are LOWER.

In my area, we might get hit with a $25-50 per year registration fee for each unit and another $40-60 inspection fee during every turnover.

The fees you describe sound not only high, BUT also potentially ILLEGAL! Its very common for municipalities to do illegal things for as long as they can get away with it. In most states, when a municipality charges a fee it can only be used to cover the work the fee is paying for.

A town near me got caught doing this when they were charging $150 for rental inspections years ago when the average fees were $35-50. They pushed the wrong landlord who sued them finding out that they were collecting 3x the money in fees as the budget for the whole department which means the fee was actually an illegal tax. Its illegal because the state didn't give municipalities the authority to charge that type of tax.

So, I would look at the fees of other municipalities. Some will probably be lower and I would perhaps talk with other investors in that area about pushing back on these municipalities with high fees if they are illegal in your state. 

@Chabelis Alegria, its not personal its investing. There will be MANY times where things do not work out in your favor and most of the time things don't work simply or smoothly BUT over the long haul its worthwhile. As you get more experience things also go better more often.

That said, a clog for wipes is one thing and not a huge deal to rectify. So, lets focus on the 2 remaining issues:

1. Cracked sewer pipe under the basement? How do you know its cracked? Did someone put a camera down it to see exactly what's going on? Did they use a locator to determine that the crack is under the basement?

Did they mention the possibility of sleeving the pipe? That is what I would ask about. They use a sock to inflate and push a resin into the pipe and form a new inner lining to the pipe. All done without digging things up.

2. Both panels are "surcharged" and need replacing? What does that even mean? A surcharge is an additional billed expense so I don't think that's the right word and I cannot guess what issue you're talking about.

I'm even having trouble thinking of a reason why your panels need to be replaced. The common reasons I could think of are:

- Too small of a service. For example upgrading from an old 60 amp service to a 200 amp

- A Federal Pacific panel which has a stigma associated with them about being unsafe

- An old panel from an off brand that is difficult to find replacement breakers for

- A VERY old panel that uses fuses instead of breakers

- A panel in poor condition such as one in a wet basement that has rusted badly. 

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Maybe read and understand what you posted. 

Nothing there said subject-2 deals were illegal only that they were abused to take advantage of people and if not done correctly could result in a void contract. 

Same things would be true with other approached like wholesaling.

Puhlease! The SubTos are why they got investigated. Sheech. It's like saying that the trail of dollar bills led to the bank where the bank robbers robbed the bank. They would have had no reason to investigate. When theyinvestigate dthey discovered that SubTo is a one way contract. If you read the post, it says that a SubTo is not a valid contract because only one party can back out. 

Sorry, I don't have time to teach you contract law, but have fun. ;-)

 Thank you for admitting you are wrong. They said a sub-2 contract the way they didn't was a problem because of how they did it.

If you understood it you would realize they could have done it differently and handled that issue. 

You seem to be trying to slip past why these folks got in trouble. 

The 2 areas cited were lying to cause a fraud which isn't necessary for sub-2 or any legit deal. 

Also the 1 sides void contract which could also be handled differently.  

Wholesaling could have similar legal issues if not done well. This just happens to be subject-2 deals. They didnt get in trouble specifically because they were subject-2 deals.

Maybe read and understand what you posted. 

Nothing there said subject-2 deals were illegal only that they were abused to take advantage of people and if not done correctly could result in a void contract. 

Same things would be true with other approached like wholesaling.

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Jay Hinrichs:

Quote from @Tom Gimer:

Quote from @Jay Hinrichs:

Quote from @Eyal Goren:

Quote from @Mitch Messer:

Quote from @Eyal Goren:

I read that every mortgage has a Due on Sale clause, which means you have to notify the lender when you sale the property and pay the entirety of the loan when you sell the property. 

How do people work with the clause and make these kinds of deals?

First, let's be very clear here.

The mortgage your speaking of is a private agreement between the seller and the lender. The "due on sale" clause (DoSC) obligates the seller to notify the lender if the property is sold.

Failing to do so would place the seller in violation of this agreement, giving the lender the right to accelerate the loan.

But no laws are being broken here.

So, subto is neither legal nor illegal.

Second, it only works because most lenders are more interested in receiving payments than in invoking the DoSC clause and foreclosing on the property.

But, it can work, provided seller and buyer are both on board and the proper process is followed.

Thanks for the clarification. What happens if the lender does accelerate the loan? I guess the seller would like to address that in the agreement. 

If you dont pay the loan off it goes to foreclosure and the original owner gets their fico CRUSHED.  its highly risky for most mom and pops to sell on sub to.. and its simply not a way for those without substantial wherewithal to buy property and keep the seller safe.. Lots of absolute nightmares come out of sub to when folks get into title but dont have the money to pay the loan off or the ability to refi.

Short term, leaving financing in place during rehab prior to resale — great strategy with limited risk to either party. 

Long term hold, with buyer planning on carrying existing financing to term without the ability to quickly cure default — terrible strategy with huge risk for both parties. 

Exactly Tom all of my sub to over the years have been deals were we got the assets for far below market did rehab and resold generally within 9 to 12 months we never bought them to keep as rentals. Its a very poor situation for the original owner to be on the mortgage for years and years without the benefits of ownership and the control.

Why do you say its bad for the original owner long term? I would think in most situations the original owner is in financial trouble, probably delinquent on their mortgage and facing foreclosure. So, selling sub-to, the mortgage is brought current and timely payments are made by the new owner helping the original owner's credit CONSIDERABLY!

Also, I believe I saw somewhere that the mortgage won't count against the original owners DTI after a period of time if they show someone else is paying the mortgage. So, they could potentially buy another house later on.

I do agree the lack of control is a potential issue.

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People recover over time and they want their name off of the loan.

They have no way to force removal, other than to pay off the loan on a home they no longer own. 

So they contact the lender and tell the lender they no longer own the property and want to be removed. The lender at that point can exercise the Due On Sale and it becomes a problem for the subto buyer, who now has to find new financing or lose the house to foreclosure. This destroys the credit of the original owner who can then sue the subto buyer.

Another issue is if the subto seller claims they were taken advantage of by the subto buyer at a vulnerable time (pre-foreclosure) and an attorney or regulator raises the question of equity skimming. Bank related issues can be prosecuted for 10 years. Serious punishments.

With all of that, Subject To is legal. Just make sure you do it the legal way. Driving a car is legal, as long as you follow the rules. It's the same idea.

People can do all sorts of dumb things. If the loan is being paid the seller/previous owner has no reason to want off of the loan. They can qualify for a new mortgage and show they are not the ones paying on the old loan so that the payment doesn't affect their DTI.

I don't think the typical sub-to deal would lead to equity skimming because they are likely close to foreclosure and there isn't enough time to rent the unit back out and make money allowing the unit to go to foreclosure.

If the new owner pays on the loan its not "equity skimming" from what I understand of it.

You are correct there certainly are ways for things to be done badly or illegally, but these are BAD MESSY situations before a sub-to deal would even be considered. Its like a short-sale, its better than a foreclosure but has downsides as well. 

I believe you are not aware that the definition of "equity skimming" has been expanded since the great Federal Reserve debacle of 2008.

If you believe that is true, please cite a source. You simply saying something is so, adds nothing to a discussion. All it ends up being is one person saying "Is not!" and the other one saying "Is too!" over and over.

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Here ya go - release was March 14, 2025 Since there are 81 pages, I'll just point you to a pertinent one, you can download the entire 81 pages below

https://www.azag.gov/press-release/attorney-general-mayes-su... Release

https://www.azag.gov/sites/default/files/2025-03/CV2025-0084... Lawsuit

They give the identities of two partners and call the third - Partner "C" plus dozens of "not yet named"

 Doesn't sound specifically related to subject-2. The portion that created the fraud was likely misrepresenting who they were and what they were trying to do. 

When you lie to get something of value that is potentiallt fraud. 

The article cited no issue with taking control of the loan being illegal only lying to the seller to get something of value from them.

@Ray Young, a couple things to consider:

1. Have you checked the zoning to see if you are allowed to covert this single family into a duplex. If the zoning is something like R-1 residential you may not be allowed to do this at all.

2. Even if zoning allows for this there may be other zoning requirements that have to be met. For example, its common to have larger minimum lot sizes for properties with more units on them. Another example might be a requirement to have a certain amount of off street parking for each unit. A municipality in my market would require you to have 1.5 parking spaces per unit when adding units. So, that would be 3 spaces for your plan.

3. Did you check that the finished basement would meed the occupancy requirements to be a separate apartment? The common issue that comes to mind is egress. Often times a basement apartment needs to dig out along the foundation and add an enlarged egress window so that occupants to get out in case of an emergency like a fire. 

4. With regard to utilities. With water it likely would not make sense to add a 2nd water line as they tends to be pricey compared to the size of the bill. So, I would include that in the rent, BUT if a long term tenant adds occupants such as a bf/gf moving in, I would add an amount to the rent to compensate for the added water cost maybe $25.

With electric, I would also include it simply until you can separate the electric and install a separate service for the basement. However, you may find this pricey since the basement is already finished. It will depend on how separate the circuits are between the basement and the rest of the house.