Subject To + Owner Financing possible?

Question

I want to buy a property to use as my home residence. I want to do a Subject To with the owner. They owe 65K left on their mortgage. The house appraised at 100K. I'm going to buy it for 90K. The remaining 25K I want to draw up a private deal over X amount of years to pay the owner.

IS THIS LEGALLY POSSIBLE?

IS THERE A BETTER WAY?

I DON'T WANT TO GET A MORTGAGE AND HAMPER ME BUYING RENTAL PROPERTIES (I already have 2 mortgages).

Jay Hinrichs · Answer

sure.. nothing down ?? this works if seller is willing.. you take title sub too first seller puts a second on it for 25k..

Jay Hinrichs · Answer

banks have the right to call the loan.. does not happen often but it can.and so you would need to be in a position to stroke a check and pay the bank off .. the sellers second would then go into first position.Or you need to be able to refi.. the whole 90k.. without those two exits available to you.. then it becomes a terrific risk for the seller.. and if the seller seeks professional opinion guidance most lawyers would advise against it .. unless you have very strong financial ability.its not you we are worried about in this scenario is the sellers credit and equity that are at risk. you have no money into it .. so no risk for you

Don Konipol · Answer

@Ryan K. The time line for foreclosure depends on the state the property is in. As a general rule of thump judicial foreclosure states, which require a lawsuit in order to foreclose, take anywhere from 9 months to two years to complete a foreclosure, during which time the debtor can pay off the mortgage by paying the principal, outstanding interest, late fees and legal costs of foreclosure. Non judicial states are quicker. As a practical matter foreclosure can be accomplished in less than two months in Texas, with more time needed in other non judicial states. Two methods are primarily used to temporary stop the foreclosure process. First, it’s relatively easy in most jurisdictions to obtain a Temporary Restraining Order, which will stay foreclosure for a period of time, usually 60 to 90 days. Secondly, filing bankruptcy places an automatic stay on foreclosure filing. If the property is purchased subject to by a remote entity, the entity owning the property would be the party filing the bankruptcy. By having that entity owned by a second entity, the individual involved would likely personally avoid the negative credit history associated with that bankruptcy filing. But this gets into the more specialized area of asset protection and identity protection. So there is usually enough time available to refinance. As Jay mentioned, the party purchasing a property ‘subject to’, while gaining ownership of the real estate, is not a party to nor liable for the mortgage lien. The attorney for the seller will attempt to get the buyer to indemnify the seller for loses occurred by non payment of the mortgage or by mortgagee foreclosure. The solution to that is simple; refuse to sign any indemnity clause.

Michael Thompson · Answer

@Ryan K. - It would depend on the bank doing the financing. Some banks will loan up to 80% of the purchase price regardless of purchasing below appraisal. Some will allow you to finance the whole amount since you're purchase price is 80% of appraisal. I would start working with potential mortgage companies and banks now so you will be ready. Also, your bank may not like the owner carry back unless you keep it private between you and the seller.

Ryan K. · Answer

I need advice from the investing community: If the seller got scared and instead wanted me to get a bank loan to wipe out his mortgage for say 65K, if his house appraised last year for 100K would I gain instant equity in purchasing it? For example, could I take out a HELOC?

Ryan K. · Answer

I have great credit and could likely refinance if they attempted to foreclose. But if they did, would I have enough time to get the mortgage? Would it be a period of days or weeks I'd have to pay it off worst case? I can't stroke a pen, but I have very good credit. Only 2 mortgages, 1 for the small house my wife and I want to rent or sell and move out of, and another a triplex we own

Ryan K. · Answer

Does this risk triggering a due on sale clause? Do banks usually care or is it easy for them to find out? If I take over selkers mortgage can I pay whatever extra per month to pay down the mortgage quicker?What would I do if the bank found out?