Edwardsville, IL · Member since 2012 · 28 posts · 2 votes
Hi everyone. I've got a property I want to purchase from a seller using the 'Subject To' strategy. I understand the basics of how it all works, but wonder what do you generally tell the seller when they ask what will happen if you don't pay the payments? With the property being deeded to you at the time of purchase, is it in the contract that if I fail to make payments it will be deeded back to the seller?
Once I understand the process a little better, I'll feel much more comfortable presenting the offer to the seller.
Also, does anyone have a decent Purchase Agreement contract that can be used in Illinois, or know where I can find one, ideally that covers 'Subject To' deals?
It's actually better NOT to buy subject to the mortgage. It leaves the seller in a bad situation if something were to happen to you.
Instead, buy with seller financing that wraps the underlying loan.
Then you can tell the seller they are protected just like a Wells Fargo or Chase bank... if you don't pay they can foreclose on you and get the house back.
But take it one step further. What if you're in an auto accident and in a coma for 3 months. Who will make the payments? Who will collect rent.
Create your PLAN B. Then you can tell the seller about it and they will feel much better about working with you.
Michael Quarles has his contact info in his signature area, or you can Click the "Connect" link beneath his avatar picture and select the colleague request so that you can communicate with him if you so choose ...
But Michael, did you know that you can post your own documents into the BP fileplace so that anybody can access them and download?
"Our contracts also add that, should we not be able to make the payments, once payments become 30 days past due, the seller is able to take the property back which includes all of the repairs and principle pay down since we’ve owned it."
It's actually better NOT to buy subject to the mortgage. It leaves the seller in a bad situation if something were to happen to you.
Instead, buy with seller financing that wraps the underlying loan.
Then you can tell the seller they are protected just like a Wells Fargo or Chase bank... if you don't pay they can foreclose on you and get the house back.
But take it one step further. What if you're in an auto accident and in a coma for 3 months. Who will make the payments? Who will collect rent.
Create your PLAN B. Then you can tell the seller about it and they will feel much better about working with you.
I will never allow a seller to wrap or create a contract that rescinds my deed. And I've done a ton of subject2 deals. The key to subject 2 is have the resource to accomplish it successfully.
They cannot resind your deed. But they can foreclose if you don't make the payments.
no one should ever enter in to any contract unless they have the resources to do the deal.
Think about this, what if you and your business partner and family are flying to the Bahamas for a company "meeting" the plane goes down and everyone dies
no payments get made on the seller's mortgage
they find out after a few months, and start foreclosure to get the house back IF they care about their credit. many won't
if they did not have a deed of trust or mortgage, they could not foreclose. They would have to sue your estate to try to get the house back. it would take many years and cost 10's of thousands of dollars. by then, of course, the house would already be lost to a foreclosure
or
think about this, you're standing in front of a judge explaining your deal. the judge says, so you have the deed and the seller has all the liability. if you default there is no easy way for them to get the house back to protect their credit. judge says you took advantage of the seller - you lose.
the better answer for the judge would be to say, you protected the seller's interest by giving them a deed of trust or a mortgage so they have a mechanism for getting the house back in case their is a default plus you clearly disclosed all the details and the seller signed off on them
I've done TONS of subject to deals too. Just because a lot of people do them it does not mean it is the best way to do that type of transaction.
I stopped doing subject to deals after a guy in Texas got 5 years in prison for buying houses subject to, then failing to make the payments on 15 houses. The sellers had to SUE him to get their houses back.
because he sent yellow letters to the sellers which enticed them in to the deal, he also charged him with MAIL FRAUD
And because he was still collecting rents, he also got charged with Equity skimming. many of these were FHA loans so the FEDS got involved.
Every time you do a deal, ask yourself, if I had to explain this transaction to a judge would he/she feel that i treated the seller fairly and that i protected their interest and disclosed ALL THE DETAILS
We all go in to deals thinking everything will work out. But when it goes south for some reason, it can get ugly. Better to protect yourself UP FRONT