Subject-to Deals for Pre-Foreclosues in California: Experiences

[Matthew Nelson]

I am currently researching the process of doing subject-to deals for homes that are owned by distressed sellers, particularly those that have missed two or more payments or have entered pre-foreclosure proceedings with their lenders.

I have been researching for a while and have found people have had mixed experiences with lenders calling loans thanks to the due-on-sale clause. Some say the banks are happy as long as they are getting paid, some say the banks will call the loan if they don't get paid within a year, some say its entirely based on the reputation of the lender, and some say the banks always call it.

If you have experience related to subject-to deals, preferably in California, can you touch on these questions:

1.) Which lenders are known for immediately calling loans upon the transfer of the title?

2.) What is your experience with having loans called?

3.) What are some ways to bypass the due-on-sale clause?

4.) If a loan is called, what options does an investor have?

Any advice is helpful. Thank you.

Some assumptions: The loan would be brought current upon sale

[Ron S.]

1) There is no such list. Most, if not all lenders will eventually accelerate the note. Most if not all, have regulators, examiners and investors that will require them to mitigate risk of loss by calling the note due to an illegal transfer.

2) I call loans every time I catch someone transferring out of their name. I catch them in a myriad of ways. I give them 30 days to cure or I start foreclosure and I don't have the 120 day rule when the property is transferred. I can start in as little as 30 days from the date of my demand letter.

3) Other than don't get caught? Keep the seller on title.

4) Pay it off with cash, financing, or sell it before the lender forecloses.

Subject to, AITD, Wraps, etc. are just fancy terms for illegal transfer of ownership to a non obligor.

I get why people like to do it. In some "perfect storm" scenarios, people can take advantage of a below market fixed rate the borrower has, that is not available today or, No credit hit, no cash out of pocket, no liability on the note, etc. but unless you have an exit strategy if the loan is called, its risky. You compound the risk doing it with a borrower in pre foreclosure. You create a paper trail for the state to come after you for acting in the capacity of a licensed foreclosure prevention consultant without that requisite license (Assuming you don't have one and aren't exempt from having one).