Can You Sell On A Wrap With A Property You Own Subject To?

[Brian Willie]

Is it legal to sell a house on a wrap that you own subject to in Texas? I know there are quite a few restrictions in TX in general and wondering if anyone can weigh in on this. Thanks!

[Bill B.]

I can’t even imagine what kind of legal trouble you’d get in if the end buyer was an owner occupant. But it would be bad. MAYBE if you refunded their downpayment and all their payments? Maybe?

@Kevin S. 

[T. Alan Ceshker]

Absolutely.  This is the typical investment strategy for wraps - buy on a wrap (non-qualified assumption) and sell on a wrap and cash flow.

It is all a matter of disclosure and the end buyer's acceptance of the risk.  All should be ready to cure if the note is called due.  And there are ways to cure other than paying the note in full.

This is a common problem these days - not enough understanding, discussion and disclosure throughout the transaction: regarding the acquisition, the disposition, with the seller and with the end buyer.

I have a law and title office and we have closed thousands and thousands of sub to/wraps.  I teach a 4 hour course on wraps if you want to learn more on how these are supposed to be structured and managed https://wrapu.ceshker.com/

Stay legal and safe out there!

[T. Alan Ceshker]

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

[Jay Hinrichs]

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

this all works if everyone pulls in the same direction and as you note have ability to cure and refi etc. where it goes wonky is when the wrap buyer squats and the sub to buyer has no real means or is out of the deal and also goes dark.. the original seller gets fubared.  I have cleaned up a number of these deals over the years.. they are all great when they are working and everyone is on the same page but when they are not.. there is extreme risk to the original seller especially in Texas were a bank or lender can get a money judgement on purchase money loan.. out west not so critical original seller just gets their credit trashed if it was not already.. but there is no money judgement available to the lender for a purchase money owner occ loan in first position.

I think the major issue these days is these are  transactions for those with money and experience but with the internet and the Pace Morby's of the world you are going to see a lot of folks with no where near the experience or ability to handle these get into these deals and the train wrecks that will ensue.. I grew up in sub to wrap my Dad was doing them in the 70s and 80s and CA has a Deed of trust specially for this called an AITD  All inclusive Deed of trust great document.

[Jay Hinrichs]

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

PS I am glad your offering this and dont charge for it..  this is a great service to counter balance those out there that think they are experts charging 15 to 30k to learn this method which really is not all that complicated once explained :)

[Wendy Patton]

@Brian Willie personally i would not do this.  I do not give away the deed either on a sub to - when i do a sub to - I personally take that on.....  I would not want anything to ever happen to the seller's credit that I can't control.  TX likely doesn't have anything to do with it.  TX is different with Lease Options but i have not heard anything about sub tos being different there.   But the question was CAN you do it?  Yes you can do that with a sub to ....if you ever did do that...make sure the deed can revert back to you quickly if the buyer doesn't pay on time....

[Jay Hinrichs]

Quote from @Wendy Patton:

@Brian Willie personally i would not do this.  I do not give away the deed either on a sub to - when i do a sub to - I personally take that on.....  I would not want anything to ever happen to the seller's credit that I can't control.  TX likely doesn't have anything to do with it.  TX is different with Lease Options but i have not heard anything about sub tos being different there.   But the question was CAN you do it?  Yes you can do that with a sub to ....if you ever did do that...make sure the deed can revert back to you quickly if the buyer doesn't pay on time....

Thats why the AITD is such an awesome document CA came out with decades ago.. it allows you to wrap the sub to but if your wrap buyer fails you can foreclose out that TD.. and get the property back.. if the wrap buyer turns into a butt head and wont communicate or co operate.

[T. Alan Ceshker]

Quote from @Account Closed:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

It isn't that it's different as a Subject To or wrap, it's that Texas has a very quick foreclosure process.

Almost all of the current investors doing Subject To, as taught by the popular approach of over leverage and little to no money down, are people with little to no capital, no ability to get a mortgage, with no experience and no ability to over come the issues. That is how it is promoted in the videos on youtube. 

Unwinding a Subject To or wrap is not a simple matter. Maybe the paperwork is simple enough, but the impact on all involved, is not.

You make the assumption that when a note is called, there is time to perform your suggested options and that everyone will agree to do so. There is no guarantee that is a true statement. That is not reflected in the lawsuits related to this issue.

You make no mention of the escrow costs or tax implications or transfer taxes or scrutiny that is involved with a deed back. The original seller may not be available or may not be willing to incur that trouble. Let alone cover legal costs of a lawsuit.

I am unclear how you can convince someone that bought a property on a wrap in good faith, that they must now sell, deed back or lose the property to a DOS call.

The clear reading of a due on sale clause is:

“the intent of which is the transfer of title by Borrower at a future date to purchaser.”

Once a loan has had the Due on Sale called, it is tracked with special interest from then on. You can't unring the bell. In court, the history of the transaction and the histories of the participants gets called into play. Sometimes equity skimming arises as an issue as a result of examination. Among other legal issues.

As stated above, some hard money lenders have made a lot of money dealing with bailing out Subject To and wraps but that is a small part of the problem and is not always available. How does a hard money lender bail out an over leveraged property?

Credit, financial risk, legal, tax, time, insurance and the ability to get clear title are all part of the problem as well.

Selling a Subject To, to someone on a wrap, is very dangerous to all involved, IMHO.

You of course, will continue to do your Subject To, to a wrap, along with wrap to a wrap, processing & paperwork, making whatever you charge with little exposure.

But, to those who read this, it is not a small matter, Just be aware of how badly this can go for you.

I am not speaking from the teachings of a guru.  I have worked in wraps for over 2 decades and have closed over 15,000 wraps.

I make no assumptions. I am speaking from real cases. We have unwrapped dozens and protected all from the DOS clause. We have lost not one property.

While the foreclosure process in Texas is short compared to other states, the notice procedure and advanced notice by the mortgage companies has been extensive.  Per each case I have dealt with thus far.

I understand you may disagree with some of my points - but understand - they are not opinions - they are reports of what we have actually done in case after case after case.

I agree 100% with you -- if you do these, you either need to be very experienced or close them with the right people who can substitute for that required experience and keep you safe.

We close at least 50 of these every month across Texas -- and we close them legally and as risk free as possible.  No real estate transaction is 100% risk free.  We just do what we can to manage risk and make dollars for all involved.

Signing off and wishing all the best of luck and skill in their RE endeavors

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

this all works if everyone pulls in the same direction and as you note have ability to cure and refi etc. where it goes wonky is when the wrap buyer squats and the sub to buyer has no real means or is out of the deal and also goes dark.. the original seller gets fubared.  I have cleaned up a number of these deals over the years.. they are all great when they are working and everyone is on the same page but when they are not.. there is extreme risk to the original seller especially in Texas were a bank or lender can get a money judgement on purchase money loan.. out west not so critical original seller just gets their credit trashed if it was not already.. but there is no money judgement available to the lender for a purchase money owner occ loan in first position.

I think the major issue these days is these are  transactions for those with money and experience but with the internet and the Pace Morby's of the world you are going to see a lot of folks with no where near the experience or ability to handle these get into these deals and the train wrecks that will ensue.. I grew up in sub to wrap my Dad was doing them in the 70s and 80s and CA has a Deed of trust specially for this called an AITD  All inclusive Deed of trust great document.

What was your cost to the investor to bail them out?

Were you able to bail out over leveraged properties?

 The ones I bailed out I actually took ownership of.. and got them out of hot water. there was no room for a loan but enough equity for me to step in and solve the issues..  with the current crop of folks that think no equity or negative equity is OK no ability to rescue them with loans...

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

this all works if everyone pulls in the same direction and as you note have ability to cure and refi etc. where it goes wonky is when the wrap buyer squats and the sub to buyer has no real means or is out of the deal and also goes dark.. the original seller gets fubared.  I have cleaned up a number of these deals over the years.. they are all great when they are working and everyone is on the same page but when they are not.. there is extreme risk to the original seller especially in Texas were a bank or lender can get a money judgement on purchase money loan.. out west not so critical original seller just gets their credit trashed if it was not already.. but there is no money judgement available to the lender for a purchase money owner occ loan in first position.

I think the major issue these days is these are  transactions for those with money and experience but with the internet and the Pace Morby's of the world you are going to see a lot of folks with no where near the experience or ability to handle these get into these deals and the train wrecks that will ensue.. I grew up in sub to wrap my Dad was doing them in the 70s and 80s and CA has a Deed of trust specially for this called an AITD  All inclusive Deed of trust great document.

What was your cost to the investor to bail them out?

Were you able to bail out over leveraged properties?

******************

"The ones I bailed out I actually took ownership of.. and got them out of hot water. there was no room for a loan but enough equity for me to step in and solve the issues.. with the current crop of folks that think no equity or negative equity is OK no ability to rescue them with loans..."

************

That's what I've seen as well. The end buyer loses the property, and loses any equity and is stuck with losing whatever money down he placed. If he can even be bailed out. He then has to turn to the investor to be made whole. I suspect those conversations will be in attorney's offices between the two parties.

If there is equity to work with, I've seen the hard money lender charge 12% which on a $400,000 property is $48,000 plus closing costs and a much higher monthly payment to the investor.

Just a side note to the dear readers: I did not say that Subject To or wraps are to be avoided. They are legal. I said that buying using Subject To, then turning around and selling on a wrap is dangerous. For the reasons previously mentioned.

The closing attorney did not answer the question I had about what to do if an investor buys using Subject To, sells on a wrap and there is no equity (as you rightfully say, the current crop of investors believe to be okay to do) 

We shall see as they fail, in Subject To's that are bought over leveraged, or sold on wraps, what course of action the investors will attempt, in order to try to avoid the DOS and what response the regulators will have.

This company I helped had followed a 2004 guru pitching the exact same sub to wrap method we see today.. these deals were in Portland Oregon.. they had done 32 of them.. I rescued about 12 of them .. They LOST ALL their investment I took everything from them and paid nothing to them.. By the time I stepped in lawyer letters were flying complaints had been filed with the AG and they were some scared puppies.. The others basically went to default and were either lost by the bank for the original seller pulled it out . and this company went broke and I basically lost touch with them.  So thats how that played out.

With todays folks thinking zero equity or negative equity is OK there is no bail out.. If it dont work its going to be  a huge mess as you stated very clearly.

I did about 200 sub 2s personally but I never bought if I did not have at least 20% equity day one so I had an exit if needed.. And my goal like it is today was get in get out get paid.. I had zero desire to build a bunch of rentals this way.. And I still dont have a desire to own a ton of rentals.. I made a big run on rentals in 2012 bought 300 of them but soured on it and my partner bought me out.. Those were all C class mid west stuff.. I dont mind helping others buy that inventory through my BRRR funding but I am just not cut out for property management personally.

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

PS I am glad your offering this and dont charge for it..  this is a great service to counter balance those out there that think they are experts charging 15 to 30k to learn this method which really is not all that complicated once explained :)

Comment: "PS I am glad your offering this and dont charge for it.."
I guess I missed where he said he doesn't charge for this.

His website states that he does indeed charge for it. Just curious where he says that. . . ?

I thought he said it here  but dont know for a fact.. 

[Jay Hinrichs]

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

PS I am glad your offering this and dont charge for it..  this is a great service to counter balance those out there that think they are experts charging 15 to 30k to learn this method which really is not all that complicated once explained :)

Comment: "PS I am glad your offering this and dont charge for it.."
I guess I missed where he said he doesn't charge for this.

His website states that he does indeed charge for it. Just curious where he says that. . . ?

I thought he said it here  but dont know for a fact.. 

What I do know for sure when I consult for an hour or two and walk folks through this I charge for my time.. But you know the internet many simply want it for free and frankly dont have the cash to spend to get solid info.

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

PS I am glad your offering this and dont charge for it..  this is a great service to counter balance those out there that think they are experts charging 15 to 30k to learn this method which really is not all that complicated once explained :)

Comment: "PS I am glad your offering this and dont charge for it.."
I guess I missed where he said he doesn't charge for this.

His website states that he does indeed charge for it. Just curious where he says that. . . ?

I thought he said it here  but dont know for a fact.. 

What I do know for sure when I consult for an hour or two and walk folks through this I charge for my time.. But you know the internet many simply want it for free and frankly dont have the cash to spend to get solid info.

I have no problem when people get paid for their time and expertise. It just varies a lot on how much time and expertise the student gets.

According to his website, it looks like he offers coaching in the Pace Morby price range and has some "coaches" that answer people's questions. I don't think he has a one on one approach.

the little bit of consulting I have done the vast majority was to raise money for my heroshome charity .. where myself and a few other BP members raised 200k to buy a home in Memphis that Chris Clothier curated and we gave away to a hero.. I spent countless hours consulting and 100% of those funds went to buy that home.. BP put us on stage at two of their conferences and that really got us over the finish line.. Today though I will hop on a zoom one on one spend what ever time is needed to help on areas that I know well and I do charge for that. My areas of expertise are PML/HML Foreclosure Tax sale ( not tax certs) and sub to wrap creative finance and development these are all things I do for my day job.. like my project in Oregon currently www.ivyridgeestatecanby.com 90 homes 700 to 1 mil each takes some expertise to buy develop get construction loans market sell and deliver these high quality homes.. My wife is a HUGE part of it though of course.