HELP! Wrap mortgage/sub-to in North Carolina

[Derek Simkins]

I have been doing business in Florida but have recently found out that it's like the wild wild west of real estate. I am currently trying to structure a deal in Asheville, NC and the seller has agreed to terms verbally. The only problem is that no one I am working with has done any creative financing before. 

The seller has agreed to..

$275K purchase price, $84K left on a non-assumable loan, Buyer takes over payments (wrap mortgage or sub-to), seller finance the remaining $191K over 30 years, balloon at 15 years, Buyer covers all closing costs, and seller walks away with $5K cash at closing. The seller does not have the money for all the closing costs, I am not able to get a loan because I have recently switched to 1099, this is also a primary residence so all hard money is pretty much out, I have the money to pay the $84K but it puts me in a tight spot and that's a difference of ~$50K cash at closing. 

Seems pretty straight forward, wrap/sub-to the underlying loan and seller finance the remainder but since NC is a deed of trust state, my attorney is telling me it's too risky to do a wrap because I wouldn't have title until the existing loan is paid off.

If anyone has any suggestions or has done something like this in NC, I would really appreciate help figuring out this puzzle.

Thanks!

[Brady Hales]

Is your attorney a real estate specific attorney? I have found that pretty much all attorneys who are not real estate specific really have no clue about real estate laws and processes. Deed of Trust has nothing to do with ownership of the property. There are mortgage states and deed of trust states. In a mortgage state there are two parties on the loan the borrower and the lender. In a deed of trust state there are three parties. The borrowe, the lender, and the trustee. Essentially, the only difference is that in a mortgage state the foreclosure is handled by the bank and in a deed of trust state the foreclosure is handled by the trustee on behalf of the bank. That is it. It has nothing to do with ownership. The debt and the deed are not the same. They are completely different and my own family attorney doesn’t even understand that. This is why I say you must get an attorney that focuses only on real estate.

If I were you I would go to Creative Finance with Pace Morby Facebook page (it's a free group) and make a post asking for a transaction coordinator. If you are going to do a SubTo deal you will need a limited POA from the seller regarding their insurance policy as well as access to their mortgage statements, you will need to setup a servicing company so that the seller can have this debt removed from their DTI in 12 months, the seller will need to understand the challenges of DTI during this period, you will also need a limited POA regarding the insurance policy on this property. When you do cancel the sellers policy you will need to have your own policy setup in a way that protects the seller but is still satisfactory to the bank. The greatest cause of the due on sale clause being called isn't the deed transfer it is the insurance. Most people mess up on the insurance. But all of this is why having a TC familiar with Creative Finance is important. They will make sure all of this is correct for you and leave you in a good place. Also what happens if the due on sale clause is exercised? Are you going to refinance the seller out? My contracts essentially state that the property can be deeded back to the seller and then repurchased on a contract for deed at the same terms. This will satisfy the bank and be a cure for the default but your contracts have to be solid and state all this stuff and the seller has to be on board for all of these challenges when doing a SubTo.