Assuming a loan, split closing?

[Ryan Daigle]

Hi BP,

I'm close to executing a deal for an off market property that seems to be rather complex, so I'd love a second set of eyes to make sure I'm not unnecessarily exposing myself to risk.

Here's the deal: I'm purchasing a property procured by a wholesaler that has a loan that's currently delinquent and headed to foreclosure. The intent of the deal is to get the loan in good-standing so the owner doesn't have to foreclose, which I will then assume payments on as I take ownership of the property.

An additional wrinkle is that, due to liquidity constraints on my end, I only have half the amount available now, with more in a week. And since they need to avoid foreclosure now, the transaction has to be split to match my liquidity.

Here's the sequence as I understand it:

1. Day 1: I put down $15K (which brings the loan current) and sign a purchase and sell agreement, contingent on the seller closing in 10 days and contingent upon the assumed loan being in good standing.

2. Day 10: I put down the final amount and sign a contract to assume the loan payments. I also get a power of attorney over the loan and the property (so I can administer both), along with the deed to the property.

3. Day 180: I refinance the loan using my own lender, becoming the person of record on the loan and getting to a "standard" state.

Does anybody have experience assuming loan payments - where the seller remains on record for the loan but I'm making the payments (this is how the process has been described to me with this lender)?

Additionally, am I at risk between day 1 and 10, where a chunk of my capital has been handed over but I don't have any stake in the property yet? Any other risks to this type of transaction?

It all seems a bit hairy so looking for another's evaluation. Thanks!

[Derek Dombeck]

Get the deed signed and put in escrow with an attorney or title company BEFORE giving them any money. The Escrow Agreement will specify that the deed will not transfer until you have made all monetary payments that you agreed to. This is in addition to the advice given by Andrew.