Taking properties Sub-2 - How long for loan payoff?

Question

I'd be interested in hearing from members who have purchased or sold properties subject-to existing mortgages.  What's the longest time you've kept the existing lien in place?  What agreements did you make as buyer or seller?

I've only used sub2 as a buying and problem solving strategy and never kept one open longer than a year, and never used sub2 for a buy and hold.  I put in my purchase agreement when the final payoff on the loan will be.

I'm curious what sellers are agreeing to. Being relieved of payments on the property may be motivating to some sellers.  But three years down the road, many sellers will be looking to buy again and/or will be annoyed that loans in their name are still open.

Experiences?

Rocky V. · Answer

I currently have 12 sub2 deals in my portfolio with no intentions of paying them off early. I make the seller's fully aware of this during negotiations and also have them sign a contract which clearly states my intentions. The majority of them are already behind in payments or have no equity so they realize I can not payoff early. I have yet to have a seller come to me after the sale and ask when the loan will be paid off.

I did sell one this year which was also acquired this year. Tenant was interested in purchasing so I gave her a high figure and she agreed ;) It would have taken me 6 years to realize the same profit if I decided to keep as a rental.

I did sell one this year which was also acquired this year.  Tenant was interested in purchasing so I gave her a high figure and she agreed ;)  It would have taken me 6 years to realize the same profit if I decided to keep as a rental.

Bill P. · Answer

Kristine Marie Poe

Borrower had another house already purchased when I took over his existing loan. They are about 45 minutes away from me. They would like me to refinance and/or sell which I am trying to do through a lease/option. Their option runs until 6/30/15. I never expected to keep it this long but the housing crisis hit right in the middle of these 10 years and the value of the house sank like so many did. The borrowers are thankful that I have paid on time for 124 months but if the truth be known, I can't wait to get this off my books as well since 10 years is too long to keep any property for me.

Account Closed · Answer

Bill:  Great loan.  Where is the borrower, and what is their situation (if you know it)?

I did a sub2 earlier this year and the loan was fixed at 3.25%.  I solved several lien, title a and property problems and then paid the loan off upon re-sale.  I hated the HOA it was in so was happy to sell it.  But, it would have been a great cash flowing rental.  I was in at $15K cash, with a loan balance of $19K with a payment of $100/mo.  It needed $5K to make it rent ready.  Rents for $950.  Looking back, the seller/borrower would have had no problem keeping that loan open.  She just wanted all the other debt issues to be solved and to get the loan out of foreclosure.  Given her situation I'm pretty sure the loan balance wouldn't affect her financial future even if she lives another 30 years (she's 70).

The reason I started this thread was to see what kind of push back or problems sub2 buyers run into.  Nothing yet.  :)

Bill P. · Answer

10 years and going strong with a 2.78% rate.

Rob K. · Answer

5 years and still going. Took back a property by foreclosing a second lien on additional property collateral to the main collateral back in 2009. Lender was Wachovia  at that time and now it is Wells Fargo.

No agreement with prior owner of course. Informed Wachovia we were new owner back in 2009 and borrower's statements then started coming to us. Wells Fargo does not seem to know we are owner or care after they acquired Wachovia. It is an adjustable loan currently at 3.124%.

Derek W. · Answer

Great thread!

I've a few examples I can share. My first rental I ever bought was a sub2. I assumed a $74,000 loan at 7.2% with 17 years left on it $502.30 month payments.  The house rented for $550 month (I know, I'm a genius! Almost $50 a month positive cash flow, I thought back then.  Didn't yet know about taxes, insurance, vacancies, repairs, stupid factor, etc [yes, stupid factor is an expense]) About once a year the seller/original borrower asked me when I was going to pay back the loan. Confused by the question, I would answer "I dunno...maybe when I get a raise at work?" There was never an agreement in place, so it was always kind of awkward. Being honest, I kind of stopped taking his calls after a few years. I never missed a payment. A few years back, I sent the last payment in and now it's free and clear. (Also rents for $1,350 now!!!)

Another sub2 example:

Later with a little more experience, I had a written agreement that I would refi or pay off the existing loan after 5 years. Everything went smooth for 3 years.  Then he started texting me asking me if I could please pay off the loan. Seller/original borrower borrowed the money from his dad in year three and paid off the loan and we wrote new docs for a seller carry agreement. Not sure what event happened in his life, but he suddenly needed the loan gone. When he called and asked if I could please pay it off. I told him I'd work on it, but he found a solution sooner.  I was happy, I got better terms on the seller carry and didn't have to worry about a due on sale ever being called.

Another example:

Needing a primary (well, second home) I started searching for a good no money down house. I found a cool house in the woods for sale on the MLS through a realtor. Seller had received a job transfer across the country and needed to sell so he could qualify for a new loan. House was very slightly upside down, but i liked his loan and the monthly payment amount. Working with a mortgage broker, we were able to sell his house to me sub2 and have the underwriter approve the transaction so he was no longer obligated for the debt and he qualified for a new loan and was able to buy in his new home town. I'm still making the payments on this sub2 4 years later. I've never heard from seller since we closed.

Account Closed · Answer

Working with the elderly and estates is pretty easy in the sub2 dept. in my experience.  That, and sellers leaving the country.  I'll be curious to see what your numbers look like 5 years from now.  I just can't imagine someone with a better financial picture 5 years from now sitting quietly if there is an open loan affecting their ability to borrow or buy.  Thanks for sharing!

Account Closed · Answer

Thanks for sharing.  This is interesting to me.  I've never thought about how foreclosing on a 2nd and getting the property at trustee's sale keeps the senior loan in the borrower's name... just like any other sub2.  But here the borrower has no recourse and no agreement with the buyer for a payoff date.

Surely it has to get complicated for some people when an open DOT affects their ability to borrow or buy.  Their credit report will show a debt without any corresponding collateral.  Or income from the property.  Interesting.

Rocky V. · Answer

4 Years.  Original owner is an elderly gentleman that was placed in a nursing home, so I don't think he is worried about purchasing another home or his debt to income ratio.

Account Closed · Answer

@Rocky V. What's the longest you've owned any of the 12 properties with the loan still open?

Taking properties Sub-2 - How long for loan payoff?

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