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Discussion Starter · #1 ·
Was wondering if anyone had experience investing in property using this method?.. Basically taking over someone's mortgage payments (motivated sellers) and then turning around and seller-financing at a slightly higher interest rate. example:

taking over a property with an actual value of 85k for the balance of 70k. Your house has an interest rate of 6% and a monthly payment of $420. You sell for the actual market value of 85k with 8k down and finance the balance of 77k @ 10%. The buyer’s payment to you will be $675 per month. You get 8k in cash up front and $250 per month for the next 30 years.

In the future this may be something I look into as a "cheap" way to acquire homes and create passive income. Only thing that scares me away from this is the DOS clause.

I'd like to know if anyone is or has done this successfully.
 

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I've been researching a lot lately on investment properties and "subject-to" is a way to procure a house without a downpayment, I may be wrong... I'm still trying to learn. Why wouldn't you try to get 100% financing through a bank? You could potentially earn more if the home is renting for more than the mortgage plus tax and insurance??
 

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Discussion Starter · #4 ·
The whole point of "sub2" is not needing to go to the bank because you're working with motivated sellers that will deed you the property and walk from the home. You might give the sellers a few 1000 to get their affairs in order but the sellers are usually people that are looking at foreclosure, lost job, or some other crisis that they need to move quickly, another reason why bank financing is impractical in this case.
 

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Discussion Starter · #6 ·
^ ya if they even qualify for a loan. What I don't get is why the investor requires the seller to keep their name on the mortgage when they deed over the property...

So basically the investor owns the house, he's making the payments, but if he doesn't, then its the sellers ass on the line because their name is still on the loan.

If chump is reading this, maybe he knows the answer..
 

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Discussion Starter · #8 ·
From this guy. He came to our town to talk at our local real estate club a few years back. I bought his course but never did anything with it.

http://www.sub2deals.com/
 

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I found something about it here: Subject To - Buying real estate subject to existing mortgage - Learn a creative way to buy foreclosures subject to existing mortgage

"Taking a property "subject to" existing mortgage means that you get the deed but you do not assume the loan. The loan stays in the original homeowners name, but you now control the property and make the mortgage payments on it. If you don't make the payments, you could lose the property and any equity in it. However, if you don't make the payments and you lose the property, there will be no personal liability beyond the loss of the property."

So you, as the investor, are doing a favor for the motivated seller by protecting their credit. You get the deed to the house and you make payments on the loan on the motivated seller's behalf. The loan stays in the motivated seller's name so that the lender doesn't notice. If the lender notices that the deed has been transferred they might call on the loan.

In return you get the house at whatever the principal balance is left. If the house is worth $100k and the principle left on the loan is $80k, you get the house for $20k less. In the case of the divorcing couple in your original link, the investor probably had a clause in the contract that basically said they [motivated sellers] would have to vacate as soon the investor found a buyer.

What I don't understand is that if you find a buyer and provide the financing you would still be making payments on the motivated seller's loan, how would you payoff that loan early? How would the correspondence with lender occur if the motivated seller is long gone?
 

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Ive bought 7 houses using Subject 2. The only thing that can really go wrong is the Mortgage company can inact the "Due on sale" claus, and call theloan due if they find out the deed has been transferred. Ive NEVER seen it done, but it is a possibility.

It can be a very easy/quick way to get houses/passive income very very quickly. My mentor hold about 150 houses at any given time. If you get into it make sure you go through a seasonedinvestor for training because the paperwork needed to make it work properly is extensive. You need deed transfer papers, Power of attorneys, purchase contracts with the proper language, etc...

I got out of it becase it was impossible to sell the houses for a profit and after 4-5 years the original homeowners tried to start buying houses and couldnt because the house was still in their name. Then we started getting calls every other day screaming about why we havent sold their house yet, etc...
Good luck. If you have specific questions on it, let me know.
 

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Actually, there exactly a 00.000000000% chance of fraud buying home like this. The mortgage contract (in most states) just have the Due on sale clause in them which states that if the deed transfers, the loan must be paid in full. Its up to the lender to excercise that rule.

No lender will excercise the rule unless the payments haven't been being made or some other issue comes up. As long as the mortgage is paid on time, the bank couldn't care less who's name the deed is in. Theyre in the make money business, not in the real estate business.
 

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Actually, there exactly a 00.000000000% chance of fraud buying home like this. The mortgage contract (in most states) just have the Due on sale clause in them which states that if the deed transfers, the loan must be paid in full. Its up to the lender to excercise that rule.

No lender will excercise the rule unless the payments haven't been being made or some other issue comes up. As long as the mortgage is paid on time, the bank couldn't care less who's name the deed is in. Theyre in the make money business, not in the real estate business.
hahahahahahahaha. Wrong!
 

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Actually, there exactly a 00.000000000% chance of fraud buying home like this. The mortgage contract (in most states) just have the Due on sale clause in them which states that if the deed transfers, the loan must be paid in full. Its up to the lender to excercise that rule.

No lender will excercise the rule unless the payments haven't been being made or some other issue comes up. As long as the mortgage is paid on time, the bank couldn't care less who's name the deed is in. Theyre in the make money business, not in the real estate business.
If you informed the lender, then my post didn't apply, so re-read it. If the lender wasn't informed, the seller committed fraud and you were an accessory to fraud. There is not a single bank in the country that won't call the loan due immediately when notified of a sale. Not one. Zero.
 

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Oh, I forgot to mention: good luck enforcing your right to title. No legitimate title company will insure your title, unless you lied to them, too. And that would invalidate the policy. Enforcing your title isn't cheap, without the horsepower and deep pockets of a title company behind you.
 

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Wait, you couldn't even involve a title company, since they wouldn't insure title without a recorded deed. If you recorded the deed, the lender's title service would notify them and they would call the loan due. I am not sure why the original sellers were upset with you that they still owned the houses: they could just sell them legitimatly and you would get sued by whoever you "sold" the houses to. Bwaahahahahaaaahaaa!
 

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The term fraud is thrown around far to easily.

Fraud: deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage.

Not informing them specifically is not fraud. Is it a breach of contract? Yes. And thats why I made sure to say something about the Due on sale clause.

The houses that I have owned "Subject-to" have all been reported to the lenders. Nobody has ever even batted an eye. So your assertion that "There is not a single bank in the country that won't call the loan due immediately when notified of a sale. Not one. Zero." is 100% dead wrong. Ive dealt with HSBC, wells fargo and countrywide and NONE of them have called a note due. Also like I mentioned my real estate mentor holds roughly 150 houses at any given time and has never, not once, had a loan called due.

Personally, I dont recommend buying houses "Subject-to". There are far too many headaches to deal with for a tiny return. But it is possible, it is legal and it does help out the original homeowner IF, and I emphasize IF, you sell the property outright before they go looking to buy a new house.
 

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The term fraud is thrown around far to easily.

Fraud: deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage.

Not informing them specifically is not fraud. Is it a breach of contract? Yes. And thats why I made sure to say something about the Due on sale clause.

The houses that I have owned "Subject-to" have all been reported to the lenders. Nobody has ever even batted an eye. So your assertion that "There is not a single bank in the country that won't call the loan due immediately when notified of a sale. Not one. Zero." is 100% dead wrong. Ive dealt with HSBC, wells fargo and countrywide and NONE of them have called a note due. Also like I mentioned my real estate mentor holds roughly 150 houses at any given time and has never, not once, had a loan called due.

Personally, I dont recommend buying houses "Subject-to". There are far too many headaches to deal with for a tiny return. But it is possible, it is legal and it does help out the original homeowner IF, and I emphasize IF, you sell the property outright before they go looking to buy a new house.
Thanks for the dictionary.com definition of "fraud." Perhaps you should consult an attorney for the legal definition. While there, perhaps you should inquire about the terms "inducement," "unjust enrichment," "conspiracy," and other terms you will become painfully familiar with when the lenders act. How would you know that the lenders didn't call the note due? LOL! You are not a party to the loan. I guess you could trust your partner-in-crime that "sold" you the house to tell you. I am more than highly skeptical that you notified the lender in any of your transactions. If they were notified, they would absolutely act to protect their security interest, otherwise their title policy would be invalid. I guess I am calling you a liar. Anyone who doubts this need only call any servicing department of any lender and tell them that they want to buy a house from one of their borrowers subject to the existing loan. Yes, it is a civil breach of contract, but it also involves numerous state and federal criminal acts. If someone is doing this as a business, it will not end well for them. Simply not telling the lender is the least of your worries: entering into schemes intended to hide a sale from a lender, such as a transfer of a beneficiary's trust interest, opens a huge legal can of worms. The fact that you stated "The only thing that can really go wrong is the Mortgage company can inact the "Due on sale" claus, and call theloan due if they find out the deed has been transferred" clearly indicates you didn't tell the lender. Mentioning "You need deed transfer papers, Power of attorneys, purchase contracts with the proper language" is a clear indicator that you actively tried to hide the transactions from the lender, most likely with a trust in which you were the trustee and then received a transfer of beneficial interest from the seller/beneficiary.

Good luck.
 

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You are wrong on every single one of your assumptions. Its not worth the argument at this point. I have NO idea what your background is, but I can tell you Ive bought many of these and been involved with probably a hundred of the purchases, and can guarantee that no laws are violated (we do have a lawyer, thank you) and everything is in the open and on the up and up.

Thanks for the luck.
 
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