Question about Sub2's agreement

[Jon Quigley]

Hello. I've been doing a ton of study on Sub2's recently and have a question.

Does a Sub2 include a written agreement that if I the investor were to not make payments on the original loan, then the seller has the right to foreclose on the investor? Is this a common agreement that gets put in place on a Sub2? If so, then I don't see why the references to FBI/AG and such would be a risk because that agreement would clearly show it's all on the up & up. In the various sources of info, the words "investor promises to make the payments to the seller" - do they mean verbally due to the mutual interest in keeping the financials healthy, or is this promise a written agreement? Thanks in advance.

[Brian Gibbons]

@Jon Quigley

The sub2 is not a private mortgage, you are getting the deed and morally promising to pay the underlying PITI for a period of time and then paying it off in full down the line.

There is no foreclosure by the seller.  The seller can not repossess anything.

The BANK can call the loan due.  If insurance is current and payments mortgage payments are current, there is little motivation for the lender to call the loan due.

If the Lender finds out the title has changed, the Lender may ask you to "financially qualify" to keep the mortgage arrangement instead of calling the loan due.

@Jay Hinrichs thought I would add you here.

Jay and I talk about sub2 and the pitfalls.

The FBI and the AG do not like folks taking advantage of home sellers, and 

"Getting the Deed" through "Subject to Existing Financing" has been abused by Gurus as low money entry into get rich quick ideas and strategies.

I love Sub2, but always ask the following when I buy on Sub2.

1. If I buy this property, can I get private money or jv money to pay cash for the property or to refinance the property if the loan gets called?

2. Will I protect the seller and and have reserves of 2-3 months, have good insurance, etc., another words have a fiduciary duty toward the seller in case my tenant or owner finance buyer defaults on my agreement?

3. If I owner finance the buyer with a sub2, will I (post Dodd Frank) use a good RMLO to protect the Seller and myself in case the OO (Owner Occupant) Buyer gets and attorney and sues on the grounds that the owner did not follow the "ability to repay" rules?

4. Can I see owning this property if I need to get financing for it and own it?  Do I love the location, the condition. the re saleability of it?

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My BEST ADVICE is 

-not to sell a sub2 acquisition on a wrap, 

- but own it for a short time 

-and re sell on a lease purchase to a retail buyer with reasonable credit financial means. 

-This will get the existing financing paid off and develop a reputation with you the real estate investor as an ethical problem solver.

See my blog for sub2 info

http://www.biggerpockets.com/blogs/3/blog_posts/43...