Seller finance

[Demetrius Gatling]

I found a duplex for 48,000. 1 bath/1bed both units are renter for 375. I asked the owner if he would owner finance he agreed but he doesn't own it the bank does. Is it still possible for me to move forward? Is it a good idea? He will owner finance 7,000 down sell price 48,000 mortgage 500 month. Insurance will remain in his name and he pay taxes. Help!!!!!

[Bill Gulley]

Welcome to BP, @Demetrius Gatling

If you're going for it, you better spend hundreds and safeguard thousands by seeing an attorney!

Brian sometimes tags me to prompt a thesis out of me, LOL. 

"Subject to" is a term meaning a grantor grants title interests and agrees to remain responsible for liens filed against the title, passing their remaining interests in title to the grantee or buyer upon the full satisfaction of the lien. So, title is passed "subject to" the liens being released by the lien holder.

Generally, the grantor uses a Special Warranty Deed to convey title, warranting title just with a General Warranty Deed excepting out warranty as to the lien remaining.

Such transaction violate the alienation clause in a mortgage, no real gray area about it as it's defined in federal law. The lender has the right to accelerate the mortgage, calling it due and if not paid as demanded may the foreclose. There are different ploys used to try and hide such transactions, none of them guarantee it can't be discovered in an audit and mortgages are audited at different times by lenders and/or servicers. 

The best way to avoid having the mortgaged called due is not to hold it very long! 

 In this deal, I'd be leery of the seller paying the mortgage without some verification process. A good way might be to open a checking account in the name of the buyer and seller, with the buyer depositing funds and setting up an automatic bank draft to pay the mortgage. An attorney can include this arrangement as to who may deposit and withdraw funds. However, a loan servicer is much better.

Sellers must understand they are responsible to pay the loan as agreed and buyers need to understand that if a seller fails to pay they may have a foreclosure losing their interests in the property. 

A buyer or a seller may pay real estate taxes, better if the buyer pays, but who ever pays them gets to deduct them on federal returns!

Insurance can remain the same, a buyer may be added as an additional insured which affords liability coverage or as a loss payee to be entitled to loss amounts only, you need to see your insurance agent as to the best solution and determine your insurable interests in the property. Your attorney can touch on insurance issues as well and draft an agreement as to how insurance claims will be disbursed. 

Read more about Sub-To and installment transactions in the forums, with any of them, a buyer needs to be in a position to exit by selling or refinancing at any time over the term of the contract. 

BTW, commercial loans are exempt from Dodd-Frank requirements (but not predatory lending or dealing) and investor to investor transactions are generally commercial transactions, but not always. States may classify loans with more emphasis on the type of collateral, where residential property is classified as non-commercial. So, it's necessary to know how your state classifies commercial loan transaction between individuals or non-lenders. :)