Subject To Underlying Mortgage

[Mitch Freed]

Does anybody have experience with taking title Subject To the underlying mortgage. I just closed my first transaction like this and I am wondering what is the best way to make the mortgage payments? The note is still in the previous homeowners name. Should I open an escrow account and make the payments out of that...or just send the checks to the mtg company along with the payment coupon? Not too worried about triggering "due on sale" clause but would like to know what others thoughts are on making the payments.

[Jim Mitchell]

Mitch,
No need for a special account just to send in payments.
Just send in a check with the payment coupon, or pay online if the lender has a website for doing so.
As long as the lender is getting the payments, on time, they won't care who wrote the check out and from where.

HTH,
Jim

[Jim Sharp]

I use bill pay from my checking account.

[Mitch Freed]

Thanks guys sounds great...any advice on what to do with the homeowners insurance in a situation like this? Of course I would want to get my own policy to cover the house but in the case of a fire/loss how would that play out?

[Dawn Vought]

Get landlord insurance to cover yourself, but also leave the existing insurance in place. If you cancel it, the lender will be notified and start asking a lot of questions.

[Jim Mitchell]

Originally posted by Mitch Freed:

Thanks guys sounds great...any advice on what to do with the homeowners insurance in a situation like this? Of course I would want to get my own policy to cover the house but in the case of a fire/loss how would that play out?

Mitch,
My advice, don't leave the old policy in place, its crazy to pay for two, especially when one is invalid. The old policy would most likely be owner occupied and list the original barrowers (your sellers), as the loss payee/insured etc.
Since they sold the house, they no longer hold an insurabe interest in it.
Waste of time and money to keep that up.

So, get a new policy. I'm assuming you took title in a trust?
If the insurance is escrowed you simply set up the new policy with your insurance carrier, naming the trustee and benfeciaries of the trust as they may appear as the insured/loss payee, and of course the existing lender.
The insurance company will send info to the lender, and get paid.

If the insurance is not escrowed with payments, just cancel the old, and get a new, as described above.

As long as the asset/colllateral for the mortgage is insured, the lender is protected, they don't care what company you use, or who holds the title, especially if its in a trust.

As long as the house is insured, payments are current, you'll have no issues.

Sadly, many people THINK changing insurance causes issues with the lender and the title change.
However, after YEARS of subject to investing myself, as well as thousands of discussions about this method, I have yet to have a single person back up that claim with proof.

Besides, bottom line, at the moment, lenders have other issues more pressing than messing with a PERFORMING account/loan.

When you get new insurance, make sure its fire and hazard, and includes liability, rental dwelling/non-owner occupied.
This is cheaper than owner occupied insurance, and the right kind to get anyway.

HTH,
Jim

[Account Closed]

Originally posted by BikerJim:

Sadly, many people THINK changing insurance causes issues with the lender and the title change.
However, after YEARS of subject to investing myself, as well as thousands of discussions about this method, I have yet to have a single person back up that claim with proof.

Besides, bottom line, at the moment, lenders have other issues more pressing than messing with a PERFORMING account/loan.

Yep. Lenders are not going to touch anything that even smells like a performing asset any time soon. It will be many years before lenders really care about sub2 transactions. Right now they would love it if all of their non-performing, upside down notes were sub2'd to someone, anyone willing to make the payments.

When you get new insurance, make sure its fire and hazard, and includes liability, rental dwelling/non-owner occupied.

This is cheaper than owner occupied insurance, and the right kind to get anyway.

Listen to Jim, he knows his stuff. Also, anything other than a non-owner occupied policy will be voided if you ever file a claim. So, you would have insurance only until you, well, needed insurance. Great from the perspective of the insurer, sux to be the insured in that situation.

[Mitch Freed]

Thanks guys I appreciate the info!

[Mitch Freed]

Ok so I've got two houses that I have taken title sub 2...one is PITI...the other is interest only...I took title in the name of my LLC not a trust...I am getting policies of my own for each property...so you would recommend to cancel the previous policy...then have my new insurer contact the lender and send them the binder correct?