Questions on Subject to Financing Details

[Francis Dai]

Some questions for people who've done deals subject to existing financing.

1. Is there any paperwork involved in taking over the owner's payments? Do you just send in payments with their account # ?

2. I heard that the owner needs to sign a form for you just to be able to get information from the lender about their loan. Do you have the owner sign this or any other forms?

3. Do you inform the lender? What do you say, and what is the usual response?

4. For loans originated in the 90s(these are the only ones that have equity) in California, are most loans assumable?

Thank you for your advice.

[Michael Quarles]

Victor. You mitigate the risk by buying it at the correct value and terms.

Life is full of risk. Sub2 certainly has its share however they're more hype than reality.

As for Insurance, I never leave the insurance in play or have the borrower as additional insured.

The only time they would be mentioned on the policy is if they sold sub2 with a seller carryback. Otherwise they aren’t in the picture. Has a lender ever called one of my sub2 purchases due NO. And I have done my fair share of them.

I give the lender notification 4 ways.

1) Beneficiary Statement requesting a sale payoff by the closing company. (A sale payoff is different than a refinance payoff)

2) Attach insurance to the property in "my" name.

3) Make my mortgage payments with my name on the check.

4) Record the Deed which gives Constructive Notice.

As for disclosure here is my latest disclosure to the seller.

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.

In the event that there are insured damages on the property prior to my purchase I receive the following from the seller.

Assignment of Beneficial Interest of Insurance Proceeds

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