Subject To transaction - need to structure seller assurances

[Tim Silvers]

Buying a fire-damaged SFR sub2 in which the insurance will cover the entire cost to repair/renovate (the house is gutted to the studs, so I will wind up with a 100% brand new interior). I will be using my contractor who would receive the claim proceeds via the public adjuster that has a contract with the seller and that I work with.

Seller has 3% fixed rate loan of $200K, 28 year remaining, 30-year am., needs $60K from me as down to use as his down for a contingent sale on a new house. I am working with a savvy title co. that will insure the title subject to the mortgage remaining in the seller's name. Obviously makes no sense to refi the loan while I own the property with a fixed rate of 3%.

End goal: fix and flip or BRRRR.

Seller's main concerns:

1) What guarantees does seller have that I wouldn’t walk off the project leaving him on the hook for 2 mortgages?

2) Once the repairs are completed, how long would seller still be responsible (as guarantor) for the loan?

Addressing the seller's concerns:

Other than forfeiture of my cash down payment of $65K in the event I default on my promise to make the monthly loan payments, I'm thinking of adding the following to the transaction to provide additional assurance to the seller:

I set up a separate escrow account and agreement in which I (buyer) deposit 1 year's total payments in advance from which the note servicer would draft the monthly payment via ACH (autopay). In the event the property is sold and the loan satisfied or refinanced prior to 1 year, the remaining balance in the escrow account would be returned to me/buyer. If the underlying mortgage remains outstanding past 1 year, then I would be obligated to fund for another year, and so on. The trust factor is beyond the initial year (e.g. something happens to me or I default and the sellers are stuck). That's the part I get lost on how to remedy.

As to the DOS clause - I would put the property in a trust vested with the Seller's last name (e.g. "Smith Family Land Trust" with me as TTEE) so it doesn't raise red flags with lender. Loan is FreddieMac so doing a trust minimizes risk of loan being accelerated from what I understand.

Thoughts?