Buying "Subject to" and Seller Wants a Written Guarantee...

[Cheyenne Davis]

Hi all - I'm new here, but have watced and read for a while without jumping in. I'm buying a house sub2 and the seller is asking me for a written guarantee that we will pay his payments. In the past, I've never had to use these, although I don't mind.

Can anyone tell me what document to use? Does anyone have one specific to sub2 transactions? All I've ever seen and heard of is cya docs which state the exact opposite.

[Dion DePaoli]

Cheyenne,

Not the first and won't be the last thread related to Sub 2 or Wraps. Moral of the story, majority of the pro-sub 2 and wrap transactions tend to overlook all the other violations that are committed in the sub 2 process. Is the subject loan VA or FHA? Liabilities can be drastic if so. Mail fraud, insurance fraud, concealment and other concepts apply to these transactions. Damages can be award above the obligations under the Mortgage especially if it is deemed by a court that Borrower/Seller was at some disadvantage.

I get the common belief in these and the presumption that what is known to a particular practitioner is all that need be known, but that is pretty dangerous and naive.  In the first post we have a Seller who wants a guarantee and a party who wants a form to use as guarantee.  Oblivious to the type of guarantee and its affects on all parties.  Then we move to talking about giving the Seller a mortgage and note opposed to or as the said guarantee.  After mentioning the delivery of a security interest, we presume the Seller somehow is in a lesser position.  Well, if you give a mortgage, they are a Mortgagee with an interest.  Hardly a position of lesser power/stance.  The Seller responded by suggesting better recourse and strength for the obligation.  Not so un-leveraged.  My comment comes directly from the post being made and not seemingly understanding what it would mean. 

Under those ideas, the Seller here seems a bit wise to what he is asking for.  Implementing a guarantee does just that, makes the Buyer guarantee the obligation thus creating liability that may come with damages if the terms fail.  The guarantee could inadvertently be deemed a mortgage in disguise as a secured obligation.  So again, not so un-leveraged.  It seems like even in the follow up post just above it is still missed.  The entire idea of your post is creating and effecting a guarantee for the transaction.  Therefore automatically reducing the difficulty of enforcing the agreement.  Far from a less desirable spot.  It is possible the tide is turned a little as this Seller seemingly knows what they are asking for to some degree more so than the OP. 

As to the beliefs held on creating real estate documents, the beliefs stated are wrong.  It is unlawful to prepare a deed, mortgage, note, guarantee or lease unless (1) the party is a licensed member of the bar (2) the specific document is approved by the Supreme Court of the state (3) the party possesses a license giving some exemption specific to the document.  I am guessing your property is in Florida each state has slight variations on the rule.  Florida rule guide is:

". . .if the giving of [the] advice and performance of [the] services affect important rights of a person under the law, and if the reasonable protection of the rights and property of those advised and served requires that the persons giving such advice possess legal skill and a knowledge of the law greater than that possessed by the average citizen, then the giving of such advice and the performance of such services by one for another as a course of conduct constitute the practice of law"

A general internet search with the state and unlicensed practice of law with real estate or mortgage or similar word combinations will bring up plenty of links to review.

That is probably the best analogy for most Sub 2 situations.  Often times folks march off into the sunset with misplaced beliefs and misconceptions which eventually will catch up.  These are issues of not knowing what you do not know and when it comes to enforcement of those unknown violations, there is very little forgiveness.  

I am not trying to be a jerk.  My posts tend to be matter of fact which doesn't read like rainbows and flowers.   I said it in my  first post, the situation here is past DIY there are concepts that are being played with improperly, that was evident in the first post.  Sit down with an attorney to do this correctly.  That may also result in a structural change to the method you were trying to deploy.