TEXAS "SUBJECT TO" plan and questions

[Justin Cortez]

hello everyone,

so I've recently found a few pre-foreclosures. but looking at the comps in the area the homes have 20%-40% equity. my original plan that came to mind was to do offer a few different solutions and then push the "subject to" method.

 so i own my own home already, and it is in a decent market. 2 of the homes that are in pre-foreclosure are cheaper (principal cost but not in value). i plan to rent my existing home out and cashflow $200-$400 every month. my plan is to hopefully agree on a subject to and if the monthly payment is cheaper than that of my existing mortgage payment, i will just move me and my family into the subject to home and refinance after about a year or so after paying the principal down with a heloc on my existing home to extinguish the mortgage on the subject to home.

 i know the lender has every right to call the loan once the deed to the property has been played with and from what i have read its rarely heard of, but I am not one to say that it wont or cant happen to me. with the home having quite a bit of equity does that put me at higher risk with the lender to call the loan? what are some things that i could do to possibly keep my risk at bay with the lender of the pre-foreclosure? would it be possible to talk to the lender before an agreement is signed to for the subject to? 

thank you,

Justin Cortez

[Andy Mirza]

@Account Closed Transferring a property from a borrower to an LLC is not illegal but may trigger an acceleration because it is a prohibited transfer. Check the specific language of the note. Most institutional notes only allow transfers that are protected by federal and state laws. Generally, indirect or direct transfers that most investors refer to when they talk about sub2 are prohibited by the note but not illegal. An indirect transfer includes changing membership in the LLC without notifying the lender.

As a practical matter, most big banks seem fine accepting on time payments since they aren't as aware or as assertive as @Ron S. and his bank. Not all lenders are happy with just getting ontime payments, though. Aside from the compliance issues that Ron brought up, a mismatch between the owner of record and the borrower is a defect and makes the loan worth less. Again, as Ron pointed out, the note is a contract between the borrower and the lender. When someone takes over sub2, the lender has no written agreement with the new payor on the loan. 

A bank selling a performing note of this kind will have to take a discount unless it can cure the defect. If I bought a loan like this (at a discount, of course), the first thing I would do is start foreclosure. I make money on the margin between the price I buy and the price at liquidation. If I buy the loan at 85 cents on the dollar, I can force the liquidation of the asset and collect 100 cents on the dollar, whether it sells at the foreclosure sale or the sub2 owner pays off the loan.