Subject To HELP & INFO

[Emma Kellenberger]

How to go about Subject To?

I have an opportunity on a property from a family member but I would like to go subject to route. How Can I explain this to the seller? Pros/cons... ANY info is welcome and much appreciated! 

[Michael Quarles]

Originally posted by @Emma Kellenberger:

How to go about Subject To?

I have an opportunity on a property from a family member but I would like to go subject to route. How Can I explain this to the seller? Pros/cons... ANY info is welcome and much appreciated! 

 Hello and Congrats

Here are some objection handlers..

• Does the loan stay on my credit?

Yes, it does. Let me tell you how this will actually help you. You told me earlier that you were two payments late on your mortgage; being late on a mortgage payment, as you know, lowers your credit worthiness. By us making the payments on time, we will actually raise your credit rating byre-establishing an on-time payment history.

• With the loan staying in my name, does it hurt my credit?

With us making the payments on time, it will actually increase your credit rating. Did you know that when you pay off debt it actually lowers your credit rating? You don’t want that to happen do you? There’s no better way to raise your credit score than to keep on-time, regular payments with your mortgage. The loan remaining in your name will do just that.

• Can I buy a new house with this mortgage on my credit?

Yes, you can. There are many lenders that will look at this transaction no differently than if you had a rental property. We will show the new house lender, that we have been making the payments with copies of our payments; much like someone who bought a house with a former spouse.

• How will I know that the payment is being made?

We pay all of our mortgage payments at the beginning of the month and you will receive a notice of payment made. One of the steps we take to make sure the payments are always made is to have a reserve fund of four months’ worth of payments, and we set up these payments to automatically come out of that account. It’s extremely important to us that we honor our commitments.

• I don’t want to deal with it. I just want to sell normally.

I understand your concern. If we were to buy your house, by putting our own loan on your property or pay cash, it would not allow us to pay you as much for your property. I am offering you a solution to selling your home and you making the most amount of money, without it costing you anything to sell your home.

• I can just sell it normally?

Yes. You may be able to sell it without someone buying it Subject To the existing loan. However, my offer gives you many more advantages. It…

pays you the most amount of money.

re-establishes a positive payment history, or keeps your credit rating from dropping.

doesn’t require you to bring money in to close the transaction.

With my offer, we don’t have to worry about whether the house will appraise for the sales price. By buying “Subject To,” there won’t be a lender involved telling us that certain repairs will have to be done before they will fund the financing. This alone could save you thousands of dollars.

You get peace of mind knowing that the borrower doesn’t have to qualify for the loan. I have seen a number of deals that fall out of escrow because either the borrower didn’t qualify or the property didn’t qualify. With my offer, we can close as fast as 2-3 days from now rather than waiting and having to make another house payment.

• What if you don’t pay the mortgage?

It would be extremely foolish for us to not make the payment. We would lose everything we have put into the deal. You will get a notice from use every time we make a payment to the lender so you will know that they are being paid. Our reputation is the only thing we have and I value it more than anything else.

• Is it legal to do this?

Yes, it is legal. The lender’s only recourse is to accelerate the Due-on-Sale clause. But it is my experience that they will not accelerate the DOSC. Lenders have reserve requirements they are obligated to have for loans on properties in which they initiate foreclosure procedures on.

OR YOU COULD SAY THIS:

In fact, it could be argued, once they create a pattern of accepting my payments, they can’t even accelerate the Due-on-Sale clause.

OR YOU COULD SAY THIS:

Yes, it is. In fact, it is the number one method we investors use to help house sellers like yourself sell their houses. Occasionally, I have sellers who want to confirm that buying “Subject To” is okay and that everything is on the up and up. This is why I use a title company to handle all of the paperwork. That’s also why I say, “Let’s go ahead and open up escrow and they will take care of everything from there.”

• Why don’t banks want you to buy “Subject To”?

When banks loan money at 6% and five years later the interest is much higher, they are losing money. Banks want us to pay off those lower interest rate loans with the points and fees so they can make higher interest loans on the same property, and that just doesn’t make sense. It isn’t something that lenders want the public to know a lot about. They want us to spend all that money it costs to get a new loan, points, appraisals, title insurance and escrow, to loan the same amount of money on the same piece of property, just at a higher interest rate.

• What if the lender does accelerate the Due-on-Sale clause?

It is my experience that they will not accelerate the Due-on-Sale clause. Most of the time when we buy “Subject To”, we are actually better at paying the mortgage than the original borrower, so lenders like us. If they do accelerate the Due-on-Sale clause, you are at the same place as you would have been if I didn’t step in and buy the house. For me to buy the house this way can only help your credit, not hurt it. Why would a lender call in a loan that is in a positive payment status? The answer is they wouldn’t. Lenders are not in the business of calling in loans; they are in the business of making loans.

• When will the loan be paid off?

The loan will be paid off either when the property is refinanced or the last payment is made.

• Will the loan be paid off when you sell the property?

Occasionally when we sell the property we will pay off the loan, but not all of the time. Sometimes we will manage the loan payments from the new buyer, making sure that the lender gets paid.

• I want my attorney/real estate agent to look it over.

That’s a great idea! Let me have their name and I will have my attorney call your attorney. They probably know each other very well.

OR YOU COULD SAY THIS:

That’s a great idea! Please keep in mind, I am here to help you sell your house, I am not trying to trick you or take advantage of you. Do you think I would do that?

• Does the insurance have to stay in my name?

Actually, I will have my insurance agent contact your insurance company and work out their requirements. Therefore, I am not sure what they will want. Your policy staying in place is going to be fine.

• Can I set a time limit as to when you will have my loan paid off and out of my name?

IF YOU WANT TO SAY “YES,” THEN SAY THIS:

Yes you can, but that may mean that I will not be able to pay as much for your house.

IF YOU WANT TO SAY “NO,” THEN SAY THIS:

No. I don’t buy houses that have loan payoff time limits on them because I just can’t predict the future. I know it sounds harsh, but I don’t want to commit to something that may be out of my control. I know that the terms I have laid out are terms I can honor.

• What about the pre-payment penalty, do I have to pay that?

No. Actually, we will ask the lender for a payoff amount including all past late fees, payoff fees, and any pre-payment fees. We’ll assume all of those costs and pay you the difference between that amount and the purchase price.

OR YOU CAN SAY THIS:

No. That is what makes buying Subject To the existing loan so advantageous for you. We are going to assume those costs as part of the sales price. But if you were to sell your house and pay off your loan, you would have to pay those costs.

• What about my credit line? I still have some credit available.

We will call the lender and have them freeze the credit line and take the property Subject To the existing amount. Just make sure you void any blank checks you have – just in case.

Here is a portion of my Sub2 agreement

If checked Subject to Existing Mortgages/Loans: (See paragraph XVIII for explanation)

Buyer is buying property Subject to the Existing Mortgage(s)/Loan(s) encumbering the property in the amounts not to exceed: $.

I.If the existing balances at the time of closing are less than the amounts stated above, purchase price will be reduced by the difference. If balances are higher then shown, then Seller’s proceeds will be reduced accordingly.

II.IF CHECKED SUBJECT TO/DUE-ON-SALE ACKNOWLEDGEMENT APPLIES:

Buyer have entered in to a certain Purchase and Sales Agreement date herewith, the parties fully understand, acknowledge and agree as follows:

1.Seller and Buyer are fully aware that the Mortgage(s)/Deeds of Trust securing the property Described in Section I contain(s) provisions prohibiting the transfer of any interest in the property without satisfying the principal balance remaining on the underlying Loan(s) and/or obtaining the Lender’s prior written consent (i.e., a “Due-on-Sale” Clause), and that this transaction may violate said Mortgage(s).

2.Seller specifically understands that the Loan Payment(s) will be paid on a monthly basis by Buyer, and that the Loan(s) will NOT be assumed or paid off completely at Closing, and that the Loan(s) and Loan Payments will remain in Seller’s name and may continue to appear on Seller’s credit report.

3.Seller and Buyer execute this disclosure form after having had the opportunity to seek legal counsel as to the legal and financial implications of the Due-on-Sale Clause included in the Mortgage(s)/Deed(s) of Trust. The parties agree and understand that if said Due on Sale Clause is enforced by the Holder(s) of said Mortgage(s)/Deed(s) of Trust, the entire balance then due under said Mortgage(s) must be paid in full. In this event, Seller understands that if the Mortgage(s) is/are not paid in full, the Lender can file a Notice of Default on the property and report such to the credit bureaus, affecting the Seller’s Credit Report. Buyer understands that in the event that the underlying debt is not paid in full, the Lender holding the Deed(s) of Trust may foreclose the property, which will extinguish Buyer’s interest in the property.

4.In the event there is an escrow account for taxes, insurance, waste fees, association fees, or any other impounds or escrow, said funds shall be transferred to Buyer without adjustment. The current loan balance and prepayment penalty shall be deducted from sale proceeds and if there is an escrow shortage same shall be charged to Seller at closing.

5.The Borrower/Seller shall indemnify, defend and hold harmless the buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for; (i) any items resulting from the buyer buying the property, (ii) information furnished by the borrower or (iii) those items relating to the financial information, or (iv) the ability or inability to pay for or continue to support the debt of which the buyer is agreeing to. 

When tenant Occupied get this signed 

TENANT ESTOPPEL CERTIFICATE

Re: Premises at

The undersigned, as Tenant under that certain month to month rental agreement dated

the "Agreement")

attached hereto as Exhibit "A", covering the above described premises (the "Premises") made with ,

as owner, here by certifies, represents and warrants to _______________________and subsequent

assignees ("Lender") and agrees as follows:

1. The tenancy is presently in full force and effect, and has not been amended or modified

in any way.

2. Tenant is the current tenant presently occupying the entire space covered by the Agreement

for the purposes designated therein.

3. Tenant is currently obligated to pay monthly rental in the amount of $ .

Tenant has made all payments of rent up to and including .There are no remaining

free rent, rental abatement or rental concessions.

4. As of the date hereof, Owner is not in default under the terms and conditions of the

Agreement.

5. The commencement date of the Agreement was it continues

until _______________________________________________.

6. The security deposit and/or last month's rent paid by tenant totaled $

7. As of the date hereof, Tenant holds no claim against the Owner which might be offset

against accruing Rent.

8. As of the date hereof, there are no existing defenses of offsets which tenant has against

the enforcement of the Agreement by Owner.

9. Tenant owns no options to purchase the Premises or rights of first refusal or other rights

to acquire an interest in the Premises.

10. Tenant makes this certificate for the benefit and protection of Lender with the understanding

that Lender intends to materially rely on this certificate in making a loan on subject property.

OWNER TENANT

(Signature)

( )

Phone Date (Printed Name)

( )

(Phone Number) Date

If leaving insurance on the property (I never do) get this notarized 

Assignment of Beneficial Interest of Insurance Proceeds to YOUR COMPANY OR YOU, YOUR ADDRESS

I, SELLER, as beneficiary and claimant to the insurance policy # POLICY NUMBER with INSURANCE COMPANY: do hereby authorize and direct INSURANCE COMPANY to pay to YOUR COMPANY OR YOU, YOUR ADDRESS the total sum of All Proceeds of the aforementioned policy(ies).

I understand, the proceeds I have authorized to be paid to the above party will be in lieu of payment to me, as specified in the above policy or policies. This payment which will be paid to someone other than myself will satisfy the policy requirements for payment of benefits to me in full, or to the extent of the total proceeds the authorized amount represents, if it is not for the full amount of available proceeds.

Signed _______________________________________________,

(Beneficiary – Claimant – Print Name)

Date_____________________________

STATE OF CALIFORNIA

COUNTY OF ________________________

On before me, ______________________________________, personally appeared ______________________________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under the PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

_____________________________________________ (Notary seal)

Signature 

You will also want authorization to speak to the lenders and insurance company. Those form are common.

Happy House Hunting