Buying Property: "Subject To"

Bravo! Fantastic Sully! I am in the middle of reading a book on this very subject right now. Facinating!

And I love that word, "CHA-CHING!"
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Michael B

I just finished a book based on that subject as well.
In fact i wonder if it's the same one Michael is mentioning. haha
Thanks Sully for bringing it to the forum!
By the way Sully have you had any luck using this method?
I'd be eager to know the details of how the transaction worked out.
Anybody else that's had experience as well on the matter feel free to chime in!

- Brooke

Thats a great scenario Sully!

If this type of opportunity arises you can also inform the seller that he will still retain the tax benefits until the house is sold.

So many options for us investors.

Zeek

I have heard individuals who have used the lease to own option mention that when the leasee (hope that is the right word) pays one month late that the landlord automatically says they have broken the contract and they no longer have the option to purchase. Is this the way to go or are there ways around this?

Sandra

That could very well be true. However, it depends on the contract. If you want to buy a house via lease option make sure that you are given a grace period for late payments. A late fee might be sufficient. But don't sign a contract that can be nullified just because you are a little late on your payment.

Zeek

well, Yes and No, like zeek said "it all depends on the contract and how the seller enforces the contract."

i knew this post would be appreciated, Thanks guys, Oh and by the way, this is one of my FAVORITE ways to aquire real estate, If your "NEW" to this idea, better get studing, cause your really missing out with NOT having this in your aersonel of creative financing techniques.

Great info thanks for sharing! Have you done a subject to deal? Could you share the details with us? I sure would appreciate it. Thanks again.

God bless,

for the information about "Subject 2". Like Elena said can you share with us a deal that you did using this strategy? Well appreciated!

Wayne

This is awesome! What a GREAT idea and thanks for sharing. I'll hop on the boat with Lena & Rev Run, example please? This is just what we "newbies" need. (I would guess this applies to a HIGHLY motivated seller) Thanks!
Dawn

Hello every one, I have found 5.5 acres that I can sub-divide into 8 lots. How do I find people to pre-sell to and at the same time secure the land so nobody else jumps ahead of me? Also are these people I pre-sell to: builders or the general public?

Rick

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Well, truth is, i haven't closed any "SUBJECT TO" deals as of yet, however i have been very, very close. I had a "young kid" that was like 30(my age) and he and his former "significant other" were getting a divorce and he just wanted out of the house since she had moved out and left him with all of the bills, so i took a ride over to his house and analized the property(which was in decent shape) and it only needed cosmetics like $5,000 in REPAIRS. As i doug deeper into his problem, i was finding out that he REALLY just wanted OUT, before i drove over to the property i already knew what i wanted to pay and what i was willing to go up to based off local COMPS, TAX ASSESSED VALUE, etc. their was 1 lien, a mortgage for $185,000, which i didn't find out until i went over there(I asked him over the phone but he wasen't sure) So, here's what i had: lien/mortgage $185,000 COMPS/comparables $190,000-$200,000 ARV....and, I PASSED. Why? because I will not take a property "SUBJECT TO" WITHOUT @ LEAST A SPREAD OF $20,000(comfortably), their were other factors in my decision too, i felt strongly that i could get $200,000-$205,000 because of the TERMS that i was going to offer(LEASE OPTION) BUT, I didn't like the SLIM PROFIT MARGIN that i had, i mean, lets say that my contractor was off $5,000 or something UNEXPECTED comes up!, then i have a MAJOR problem, it just wasen't worth it to me in the end, hey, theirs more deals upon deals out there, just move on......to the next, SULLY.

You didn't say that the buyer got a deed from the original seller, but it sounds like that was the situation. Is that correct?

If so, the original seller couldn't legally take the tax benefits, if the property wasn't still in his name, as Zeek suggested for additional motivation. Neither would the seller be paying the interest or taxes, another problem.

If not, how is the buyer going to get the original seller to deed him the property later on?

Good scenario, though, and it got a lot of interest. Readers are thinking.

cactusbob

Sounds like you made the right decision on that one for sure! Well, I was hoping you could share the details on doing one that way, but no sweat. I'm sure you'll have one soon that you can share with us, after all you're the man!

God bless you,

I see your concern, however people(investors) get properties DEEDED to them all the time, it's NOT like i just made this up, this strategy has been around for years and years. I'm NOT quite sure as to what your talking about, when you say "seller couldn't legally take the tax benefits?" If you read the posts correctly i NEVER said that the seller would retain the tax benefits. You really have me lost, but if it's any help, the seller is DEEDING the property over to the buyer and the buyer makes the mortgage payments while keeping the mortgage in the sellers name, UNTIL the property is SOLD via LEASE OPTION under which the buyer would then qualify for a NEW mortgage, thats it. I feel this is the BEST and SIMPLEST way to aquire real estate, and certainly one of the most profitable.

Can you use "Subject To" when a person is in preforeclosure? Would you suggest that someone takes that approach?

That, my friend, is the BEST time to aquire property "SUBJECT TO" the existing financing. I always will use this route as my FIRST preference when trying to work out a deal with someone in PRE-FORECLOSURE, the reason being, you want to get that DEED out of that homeowners name as soon as possible, when i homwowner is in "trouble"(financially) he could be a "risk" for LIENS or JUDGEMENTS from NOT paying a creditor. So, in this situation, pay the ARREARS and take the property "SUBJECT TO", SULLY

How do you get the deed in your name, would that be the Quit-Claim Deed?
Also, isn't there a "consideration fee" for that even if it is a dollar?

I think you would use a warranty deed if I am not mistaken. Sully is that right?

If you get the deed to the property from the homeowner, no liens or judgements will be placed on the property. But the liens or judgements would just affect the homeowner.

My next question would be, with the payments in arrears how long does the bank give you to make up the back payments once the deed is transferred out of the original owners name?

The liens and judgements would be removed once the payments were brought current. That's why the owner is signing the deed over, so you can get them out of the mess they're in.
You can negotiate with the bank about the payments once you get authorization to contact them on behalf of the owner. The deed is kept in a trust I believe. Correct me if I'm wrong anyone.

That would be correct, and the reason for keeping the deed in a trust is so that the "Due On Sale Clause" is NOT activated, putting the deed in a Trust is optional, especially in this market, as long as you have 2 insurance policies open(1 for the seller and 1 for you), i dont see the bank calling the Loan Due, They Love payments that are made on time, not calling a loan due and having to possibly Foreclose on a property making that loan a Non-Performing Asset, SULLY

Deed may be transferred, but the orginal lender will mostly likely deny the new buyer unless the amount is paid in full. Keep in mind, that anytime you attempt to assume someone's mortgage from the previous owner on a foreclosed property, the bank wanted to get pay before they could release the deed of the property to a new buyer. Yes, the deed can be placed in trust deed until the mortgage is pay in full, but all parties involved during this process have to come into an agreement.

Lloyd

Appreciate the article and your honesty about not done any deal using this methods. I read this same methods in Dean's book, but the fact of the matter is, yes, there's plenty of methods to be used if another one doesn't work. I've learned that if there's a will, there's a way. For example, i just closed a deal yesterday, but i went through several methods before the seller and i finally agreed to press forward. I also would like to add that the bank gave me a real hard time and made me jumping throug the hoops just to get what they wanted because i've purchased four properties in the last six months. Talking about getting not only your financial history, but almost to a point of your personal life. It was tough experience, but it was all worth it.

First of all, the seller was motivated because he and his wife wanted to purchase a bigger home, and need to sell their house before they could do that. We talked about seller's financing, but that was out of the question because he needs the money to purchase a bigger home. The second methods we talked about was to do a lease optoion, and once again, he could not affort to hold on to the house for another year to get his money in return. Third option was to do 20% seller financing and i'll do 80%, but he needs his financing to purchase his home, so first, we had to find out how much his home is worth.

We agreed on the price of the house for 115k and the house was appraised at $140,000. Given those figure, i went to the bank and requested to do a 100% financing given there's $25,000 equity in placed. The bank refused to do a 100% financing, but have agreed to do a 95% instead. Given those figures, i've me with the seller again and made another proposal. I've asked the seller if he would agree if the bank issue a check for 135k instead of 140K for the house, and he would in turn give me $20,000 toward the down payment at closing, and my 5% down payment, it would help me a great deal. He was able to do that and not only save me from coming up with antoher 15% of the down payment, but now also safe me from paying mortgage insurance which would cost me extra $80.00 a month. Anytime you get a mortgage on a home, the lender will charge you mortgage payment insurance until the loan has 20% value of the house.

We closed the deal yesterday, and got the house i wanted and now the seller also closed on the big house that he and his wife have always wanted. It was a win-win situation for both of us and it was just a matter of negotiation and asking questions. I got beaufitul house for $25,000 less than the appraised value, and 15% down payment plus saving me from paying mortgage insurance, and he and his wife got a dream home they've always wanted.

Lloyd

Congrats on a great deal. This sounds like it took a little legwork, but both you and client managed to come out on top.

I wanted to ask you about your following point you made in your most recent submission. Can you please explain this to me. How do you negotiate this with the seller?

"I've asked the seller if he would agree if the bank issue a check for 135k instead of 140K for the house, and he would in turn give me $20,000 toward the down payment at closing, and my 5% down payment, it would help me a great deal.

Thanks for your help with this!!

hey sully
great info on subject to properties. can someone give me some book titles concerning that particular subject? am interested in reading more about it. thanks in avance.
dee

I've been working on this deal for three months, and the more i met with the seller, the more we estabished a good vibe and good friendship. We became good friends and formed a relationship of trust. He trusted me that i would take care of his home knowing that i really wanted to buy it. He wanted to purchase his dream home and was motivated to sell his current home. We negotiated from the price of the house, from the seller financing, lease options, etc and trusted me enough that i would be honest with him. One thing i learned about real estate was that i'm not scare to ask questions anymore.

I was alway scare to ask questions, but the more i ask questions, the more i became comfortable and the more motivated i become. The worse i could get from the seller was "NO" but you would never know that unless you ask. So to answer your questions, i wanted to use a different methods that are not in Deans' book and share with everyone in this fourm or what Dean called "Thinking a little different" I'm glad you ask that question because the bottom line is, don't be afraid to ask questions. You will never know what you get and he was willing to do that for me. One thing i've learned about real estate, its being honest with yourself and the people you do business with, and you'll go a long way. I've established a relationship of trust with the seller and vise a versa, and he was willing to do that to avoid me from coming up with 20% of the down payment. Good luck and don't be afraid to ask questions!

Lloyd

Thanks for the words of encouragement.
So what you are saying is that 5% of the downpayment came out of your pocket and another 15% came from the seller which was part of the selling price? So for example (to make it mathematically easy) a seller agrees to sell you his house for 100K. 5% of the downpayment (5K) comes from your pocket and the other 15K is part of the purchase price? So actually he would be selling the house to you for $85K? Is this what you are saying? Sorry if I am making this a little too hard for what it is
Cheers

Yes! The 5% came out of my pocket. The appraised value price was 140k, the lender issued a check for 135k because they're not going to give you the exactly 140k for the appraised value.

The price the property was sold for was 115k. So, instead of getting loan for the total amount of 140k, it was 135k instead. The price the house was sold for was 115k and 15% of 135k is $20,250.00 and i came up with 5% of 135k which was $6,750.00, which gave me 20% of the down payment the total of $27,000.00. The loan balance is $108,000. $135,000 subtract $27,000 of the down payment equal $108,000 which the bank finance. I hope this help! Sorry if i made it complicated.

Lloyd