I'm Buying Negative Equity Properties and I'm Excited About It

[Andrew McGuire]

I purchased 1 and UC for 2  properties this month two of which I'm keeping as Long term rental. 

The first 699 E Gold Dust, San Tan Valley AZ comps around 375K and I purchased for 393K so I'm lost about 18K equity by purchasing. The reason I'm okay with this and others I'm purchasing like it is that I took over a 3.25% interest rate which makes my payment all in $1611/month + HOA. Paid of solar and the average bill is $7/month. I plan on renting this as a Long Term Rental and market rents are 2200 in that area. So I might cashflow a little bit but big picture I have principal paydown over $600/month which will grow with that low interest rate. I plan on holding for 6-10 years and see where we are at and will refi or sell depending on equity and cashflow #'s. I have two other properties similar under contract where I am overpaying by 15-25K and putting only 10K down + closing cost.

I believe in real estate long term so am buying as many properties as I can now that pay for themselves, the goal is to get to 100 properties this way that all go up minimum of $100K in the next 5-10 years. To get the cash for down payments I am going to do a mortgage wrap on the low down payment purchases and collect a larger down payment from wrap buyer. 

[James Hamling]

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

[Andrew McGuire]

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

Historically what is the most rents have declined especially in a growing city? If prices come down 40% it doesn't matter if you can still cover payments. Equity Comes and equity goes but it doesn't matter as long as it cashflows. 

 Completely missing the forest for the trees. Don't know where to start. Subto is exposed on the original owner & bank, the  landlording with debt is exposed to current renters making payment on a downturn. Way too many variables than saying oh well I got my rent, so I can survive. And even that isn't a given. The last sentence, the former is correct until the bank calls the loan due & the latter isn't guaranteed. You want to more or less work off a different premise:

fast solutions have slow problems

Have you had due on sale/acceleration called on you? I assume you’re speaking from experience. Prett simple maneuvering and couple thousand dollars and it was resolved.

I would never put myself in that position.

From my understanding in subto you're basically assuming one's mortgage and deviating from the lender. I don't play ball like that. I'm able to make things work without needing to do that. If I did that stuff and any of my few lenders or stuff heard that for my rep, it would be tarnished. I try to keep it going strong and not get cute. 

That's fair, to each his own. 

[Andrew McGuire]

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Bruce Lynn:

So what are you doing to bridge the equity gap?  Paying cash?

Seems like anyone with 3.25% interest should have solid equity in most cases, so I'm surprised you can find people who want to do Subject2 on these, when it seems like they could sell, wipe out the loan and sell with equity.   

How often is it in AZ that people pay cash for solar panels?  In Texas it seems like 1 in 100.  So if you found one with paid off system, I guess that is a big bonus.  Does it have battery wall to power at night.  I would think in AZ that is a must, because summer heat and AC must run 24 hours a day.   As an investor how does $7/month electric help you?   Can you charge higher rent to make up for the power bill discount?  Do tenants seek those out?

Just remember it's all well and good until it isn't.  Have some cash set up for when things go south.  They will at some point and you don't want to get caught holding the bag.  When it goes south, everything seems to go south all at the same time.  Properties take longer to rent, rent stagnates or deflates, credit dries up, banks tighter on loan rules, credit cards decrease credit lines, your credit score drops because instead of 30% utilization you overnight go to 50-80-100% when they drop your credit line, hard money dries up for flips, stock market goes down and you don't want to take losses or can't use margin.   Real estate is cyclical, stay in long enough and you will go thru a cycle.  Have enough resources so you can hit the other side of the cycle.

See what is happening the CRE investors right now in many cities.

 Bolded for truth. People evaluate risk as if only 10-25, maybe 33 percent of their portfolio can get hampered at once.No, just no. That **** comes at once, and it takes you straight down with it. 

There's no value at risk metric for real estate besides your fixed rate debt and obligatory physical expenses to maintain the house. These subto transactions from my understanding are pretty much paper assumptions, with little equity and a complete exposure to physical risk, original buyer risk, and lender risk. Why enter these? I get the rate to assume, it's very attractive. But not attractive enough to wear the risk. 

Not sure if I'm understanding how it would be any riskier than buying traditional route, the difference is these deals the renter pays for your expenses where if you buy traditional you'll be negative cashflow right now, traditional seems riskier. And not buying anything because it is to expensive is the riskiest. These properties will double in value and have a ton of equity with enough time as rents go up, as depriciation, as principal pay down at a much higher clip. 

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

I would have to sell the property or come out of pocket to pay for it. Same thing as if I bought the traditional way, not sure I get the point. If this is your mindset why invest in real estate at all? 

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

 If tenants stop paying we are in big trouble regardless of how you purchased. Unless you are putting 30% down. I wouldn't invest in real estate if you worried about that. Luckily I am mostly invested in a state that is still Landlord friendly and it is easy to remove tenants that stop paying. By the time that happens if ever the properties I purchased will likely be worth a lot more but I can't say that for sure. Its a risk I'm willing to tolerate again because my wraps are generating a nice cashflow with no money into the deal. 

[Andrew McGuire]

Quote from @Shiloh Lundahl:

@Andrew McGuire It is possible to still find deals in Arizona today. So far I have purchased 5 or 6 properties this year. I’m holding most of them and flipping 1 or 2 of them.  

Here is the one I am flipping:

https://www.zillow.com/homedetails/23685-N-Desert-Agave-St-F...

I bought it for 235k and put about 25-30 into it. Plus I have held it for a few months with hard money. So my total into it is property around 275k. I plan to sell it for around 340k and make about 50k on the deal.

 That's awesome, @Shiloh Lundahl you are really good at what you do. I just recently got teamed up with someone that does rehab/construction, so I am looking to do more of these. When I tried to do it myself I lost my a**. 

[Andrew McGuire]

Quote from @Don Konipol:

Let’s step back for just a minute….

First, there is nothing illegal, unethical or immoral about purchasing a property subject to an existing loan.  A note holder can NOT stop the owner of a real property from selling the property.  Nor has the property owner promised the note holder that he would not sell the property without paying off the note.  Any deed of trust or mortgage document that had these restrictions would be in violation of basic constitutional rights.

All the mortgage instrument says is that IF a property is transferred, then the note holder has the right to accelerate the note.  

So, where do the problems, risks, and potential disasters come in? 
IMO, if both parties are fully informed of, and able to understand all risks, and potential problems, then the subject to transaction has met requirements for a fair, ethical, and “proper” transaction.

This means that if the buyer has little or no capital reserves, or has ownership of 10 properties all subject to, or if notes are called intends to walk away from the loan, then this information is disclosed to the seller.  Same if the buyer has the ability to pay off a called note for cash and would do so.  Once the seller is provided with COMPLETE information, and assuming the seller has the ability to evaluate the risks involved, then it is the seller’s decision as to what constitutes an acceptable risk; whether their willing to suffer the consequences should problems occur; and what are their alternative course(s) of action.  

I have been involved in a number of sub to deals, almost all of which were successful with few if any problems.  However, these transactions were almost all between investors; I’m not sure if most homeowners are really able to understand the total picture.  I would at least make sure to disclose all the negative possibility outcomes, and have them sign an acknowledgment.  

  Great summarization, thank you for sharing. 

[Andrew McGuire]

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

@James Hamling with Contract for Deed do you know if the property will be set aside in the event original seller files for bankruptcy? The RE attorney I work with in my state tells me the exact opposite of your message. I'll rely on their consult regarding the legalities. 

[Andrew McGuire]

Quote from @Minna Reid:

Just posting so I hopefully get an update on these "investments" in a few years...lol. Guessing things don't go quite as well as anticipated. 

I'll keep you and the rest updated unless BP kicks me off lol, If not here somewhere else you can count on it. Hope your agents are not getting their teeth kicked in too bad like all the agents here in AZ that are not adapting. 

[James Hamling]

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

@James Hamling with Contract for Deed do you know if the property will be set aside in the event original seller files for bankruptcy? The RE attorney I work with in my state tells me the exact opposite of your message. I'll rely on their consult regarding the legalities. 

Lol. That's simple, but I get how you could confuse a "noob" with such fancy talk. 

A C4D is an equitable interest in property, aside from all other facets. So if inferring one could simply "loose" the property, there funds etc., nope, not reality, and every Real Estate attorney, like mine, knows this. 

Now, just because there is laws against say robbing a bank doesn't mean nobody ever breaks the law. So is there instances where someone could try to F someone over with a LEGAL C4D, yup, for sure. And that's why we have courts, and contracts. 

But in your instance, it's really simple, the C4D holder simply talks with the bank and it's resolved then and there. I have seen instances of this happen with commercial property and what happened was that bank actually made a separate deal with the C4D holder to finance them, at the sub-market rate the seller had. So, it worked out to buyers benefit actually, got seller off property. 

But let me guess, your going to say how with SubTo people can't ever go into BK, right..... 

[Andrew McGuire]

Quote from @James Hamling:

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

@James Hamling with Contract for Deed do you know if the property will be set aside in the event original seller files for bankruptcy? The RE attorney I work with in my state tells me the exact opposite of your message. I'll rely on their consult regarding the legalities. 

Lol. That's simple, but I get how you could confuse a "noob" with such fancy talk. 

A C4D is an equitable interest in property, aside from all other facets. So if inferring one could simply "loose" the property, there funds etc., nope, not reality, and every Real Estate attorney, like mine, knows this. 

Now, just because there is laws against say robbing a bank doesn't mean nobody ever breaks the law. So is there instances where someone could try to F someone over with a LEGAL C4D, yup, for sure. And that's why we have courts, and contracts. 

But in your instance, it's really simple, the C4D holder simply talks with the bank and it's resolved then and there. I have seen instances of this happen with commercial property and what happened was that bank actually made a separate deal with the C4D holder to finance them, at the sub-market rate the seller had. So, it worked out to buyers benefit actually, got seller off property. 

But let me guess, your going to say how with SubTo people can't ever go into BK, right..... 

 Did you really LOL? 

[James Hamling]

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

@James Hamling with Contract for Deed do you know if the property will be set aside in the event original seller files for bankruptcy? The RE attorney I work with in my state tells me the exact opposite of your message. I'll rely on their consult regarding the legalities. 

Lol. That's simple, but I get how you could confuse a "noob" with such fancy talk. 

A C4D is an equitable interest in property, aside from all other facets. So if inferring one could simply "loose" the property, there funds etc., nope, not reality, and every Real Estate attorney, like mine, knows this. 

Now, just because there is laws against say robbing a bank doesn't mean nobody ever breaks the law. So is there instances where someone could try to F someone over with a LEGAL C4D, yup, for sure. And that's why we have courts, and contracts. 

But in your instance, it's really simple, the C4D holder simply talks with the bank and it's resolved then and there. I have seen instances of this happen with commercial property and what happened was that bank actually made a separate deal with the C4D holder to finance them, at the sub-market rate the seller had. So, it worked out to buyers benefit actually, got seller off property. 

But let me guess, your going to say how with SubTo people can't ever go into BK, right..... 

 Did you really LOL? 

So here's the thing Andrew, IF everything works out right, IF everyone does exactly as there supposed to and IF everything goes a-ok in the market and IF the mortgage lender is lazy or lenient, then YES, Sub-To can be a really "good thing". 

And that's the crux of it all; ALL these people and pieces have to go exactly "right". Any 1, ONE of these fails, and the whole thing can come tumbling down. 

And what do we have today? We got "Jicky-Jack's" left right and center schlepping the con-man-motto that it's "easy $", that a person doesn't need much or any $ or credit, just jump on in and get properties "for pennies on the dollar".... 

That is a setup for MEGA failure. 

There is an avalanche of disinformation going round on SubTo, the vast majority of especially the self-proclaimed "Guru's" of SubTo are with INCORRECT information on it all and selling FALSE promises and pretenses. 

Mortgages are a TRIAD; Property, Party, Debt. The contracts all but always today explicitly state a severance of this is a violation or transfer and thus enacts some form of repercussion potential. This is wildly UNSTATED by at least 90% schlepping SubTo. 

And it's exceptionally EASY for a person, a novice, who got some BAD information on SubTo to go out and get themselves into VERY serious trouble making clear-cut ILLEGAL actions. 

For example, say some novice goes out and tells prospects it's ok just don't tell your mortgage lender about it, let's keep this secret between us and it will be a-ok, let's just be hush hush etc etc.. What is that Andrew? That's mortgage fraud. That is conspiring to commit mortgage fraud. 

And what happens when 6 months later that seller is at, say a family reunion and talking to wife's 2nd cousin Fred, the Real Estate Attorney from whatever towns away, and something get's mentioned of it and Fred get's all interested and tells em that's illegal and hes now implicated in a crime and holly-cow hes gotta report this to police NOW and geeks out on seller, so seller starts geeking out thinking "I'm too pretty for prison" and so on and so fourth.... 

Next thing ya know your seller, who was a-ok before, is now all wound-up, sitting talking to some police type, freaking out thinking he's going to prison for life and gonna be Hannibal's cell mate, so now he's 2nd guessing everything so when they asked if he understood what he was entering into it's "Nope, this fancy slick talking guy told me I HAD to sell it like this, I HAD to do as he said, I'm innocent, I'm a great person, I just did what I was told to do HE DID IT, I'm, I'm innocent, nope I didn't understand ANYTHING, THAT GUY took advantage of me!".... 

That's reality. 

That's what's coming for a scary # of those running out to do SubTo today. 

And when this story plays out enough times, the hammer is gonna come down. Some DA looking to make a name will think "Huh, this has good PR value" and will launch a "sting".... 

And then and then and then....... 

Oh, can't happen huh..... Ok, then riddle to me how NAR and others just got nailed on some EPIC BS about buyer broker comp's.... If you know anything about this biz and the legal frame work of things it's INSANE what just went down.

SubTo is so RIPE for a "take down". 

Do I want to juggle plutonium, no thank you Sir. 

[Chris Seveney]

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

 It is not jazzy business its "Creative financing"....  

[James Hamling]

Quote from @Chris Seveney:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

Here is a very simple, LEGAL way to do this all Andrew. Buy via Contract For Deed..... done. 

SubTo, by it's very nature, is FRAUD. Go ahead people, try attack this, but it IS.

Telling a property owner to VIOLATE terms of there mortgage to make a deal with you is party to FRAUD. It's a scam at best. A conspiracy to commit mortgage fraud is most accurate. 

When the very intent of the actions is to circumvent a legal binding financial agreement what would one call that? Oh, jazzy business? Ok, you go try that with a Judge, let us know how that goes down. 

Long standing LEGAL instruments of real estate transition exist. LWO, C4D. The only argument one can have against these is, it cost's too much.... That they can't "get" the, say $400k property, with just $4k. And, yup, you'd be correct. Because that's a BONKERS concept to hold, and ya know NO financing agency on earth would ever do such. 

So, again, back to beginning, SubTo is JUST a fraud scheme, end of story. 

 It is not jazzy business its "Creative financing"....  

Kind of like it's not Bank Robbery, it's a "Pre-deposit withdrawal" lol. 

[V.G Jason]

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Bruce Lynn:

So what are you doing to bridge the equity gap?  Paying cash?

Seems like anyone with 3.25% interest should have solid equity in most cases, so I'm surprised you can find people who want to do Subject2 on these, when it seems like they could sell, wipe out the loan and sell with equity.   

How often is it in AZ that people pay cash for solar panels?  In Texas it seems like 1 in 100.  So if you found one with paid off system, I guess that is a big bonus.  Does it have battery wall to power at night.  I would think in AZ that is a must, because summer heat and AC must run 24 hours a day.   As an investor how does $7/month electric help you?   Can you charge higher rent to make up for the power bill discount?  Do tenants seek those out?

Just remember it's all well and good until it isn't.  Have some cash set up for when things go south.  They will at some point and you don't want to get caught holding the bag.  When it goes south, everything seems to go south all at the same time.  Properties take longer to rent, rent stagnates or deflates, credit dries up, banks tighter on loan rules, credit cards decrease credit lines, your credit score drops because instead of 30% utilization you overnight go to 50-80-100% when they drop your credit line, hard money dries up for flips, stock market goes down and you don't want to take losses or can't use margin.   Real estate is cyclical, stay in long enough and you will go thru a cycle.  Have enough resources so you can hit the other side of the cycle.

See what is happening the CRE investors right now in many cities.

 Bolded for truth. People evaluate risk as if only 10-25, maybe 33 percent of their portfolio can get hampered at once.No, just no. That **** comes at once, and it takes you straight down with it. 

There's no value at risk metric for real estate besides your fixed rate debt and obligatory physical expenses to maintain the house. These subto transactions from my understanding are pretty much paper assumptions, with little equity and a complete exposure to physical risk, original buyer risk, and lender risk. Why enter these? I get the rate to assume, it's very attractive. But not attractive enough to wear the risk. 

Not sure if I'm understanding how it would be any riskier than buying traditional route, the difference is these deals the renter pays for your expenses where if you buy traditional you'll be negative cashflow right now, traditional seems riskier. And not buying anything because it is to expensive is the riskiest. These properties will double in value and have a ton of equity with enough time as rents go up, as depriciation, as principal pay down at a much higher clip. 

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

I would have to sell the property or come out of pocket to pay for it. Same thing as if I bought the traditional way, not sure I get the point. If this is your mindset why invest in real estate at all? 

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

 If tenants stop paying we are in big trouble regardless of how you purchased. Unless you are putting 30% down. I wouldn't invest in real estate if you worried about that. Luckily I am mostly invested in a state that is still Landlord friendly and it is easy to remove tenants that stop paying. By the time that happens if ever the properties I purchased will likely be worth a lot more but I can't say that for sure. Its a risk I'm willing to tolerate again because my wraps are generating a nice cashflow with no money into the deal. 

My point was in regards to your little saying. With tenants not paying, your little equity comes & goes as long as it cash flows saying is out the window. Not about it being related to subto, seller finance, or conventional, or dscrd. So folks who press on cash flow and to a point that it's the only thing that matters--commonly miss the forest for the trees. 

If your tenants stop paying it's likely your house value will be dropping too, this comes in unison and at a grand scale. Now by that point has appreciation taken off enough to off-set? I hope so, but I think this turn will be a lot different than the last 10-12 years.

I'm still a big bettor that inventory changes, when rates drop, and this is going to cause the correction. 

[James Hamling]

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Bruce Lynn:

So what are you doing to bridge the equity gap?  Paying cash?

Seems like anyone with 3.25% interest should have solid equity in most cases, so I'm surprised you can find people who want to do Subject2 on these, when it seems like they could sell, wipe out the loan and sell with equity.   

How often is it in AZ that people pay cash for solar panels?  In Texas it seems like 1 in 100.  So if you found one with paid off system, I guess that is a big bonus.  Does it have battery wall to power at night.  I would think in AZ that is a must, because summer heat and AC must run 24 hours a day.   As an investor how does $7/month electric help you?   Can you charge higher rent to make up for the power bill discount?  Do tenants seek those out?

Just remember it's all well and good until it isn't.  Have some cash set up for when things go south.  They will at some point and you don't want to get caught holding the bag.  When it goes south, everything seems to go south all at the same time.  Properties take longer to rent, rent stagnates or deflates, credit dries up, banks tighter on loan rules, credit cards decrease credit lines, your credit score drops because instead of 30% utilization you overnight go to 50-80-100% when they drop your credit line, hard money dries up for flips, stock market goes down and you don't want to take losses or can't use margin.   Real estate is cyclical, stay in long enough and you will go thru a cycle.  Have enough resources so you can hit the other side of the cycle.

See what is happening the CRE investors right now in many cities.

 Bolded for truth. People evaluate risk as if only 10-25, maybe 33 percent of their portfolio can get hampered at once.No, just no. That **** comes at once, and it takes you straight down with it. 

There's no value at risk metric for real estate besides your fixed rate debt and obligatory physical expenses to maintain the house. These subto transactions from my understanding are pretty much paper assumptions, with little equity and a complete exposure to physical risk, original buyer risk, and lender risk. Why enter these? I get the rate to assume, it's very attractive. But not attractive enough to wear the risk. 

Not sure if I'm understanding how it would be any riskier than buying traditional route, the difference is these deals the renter pays for your expenses where if you buy traditional you'll be negative cashflow right now, traditional seems riskier. And not buying anything because it is to expensive is the riskiest. These properties will double in value and have a ton of equity with enough time as rents go up, as depriciation, as principal pay down at a much higher clip. 

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

I would have to sell the property or come out of pocket to pay for it. Same thing as if I bought the traditional way, not sure I get the point. If this is your mindset why invest in real estate at all? 

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

 If tenants stop paying we are in big trouble regardless of how you purchased. Unless you are putting 30% down. I wouldn't invest in real estate if you worried about that. Luckily I am mostly invested in a state that is still Landlord friendly and it is easy to remove tenants that stop paying. By the time that happens if ever the properties I purchased will likely be worth a lot more but I can't say that for sure. Its a risk I'm willing to tolerate again because my wraps are generating a nice cashflow with no money into the deal. 

My point was in regards to your little saying. With tenants not paying, your little equity comes & goes as long as it cash flows saying is out the window. Not about it being related to subto, seller finance, or conventional, or dscrd. So folks who press on cash flow and to a point that it's the only thing that matters--commonly miss the forest for the trees. 

If your tenants stop paying it's likely your house value will be dropping too, this comes in unison and at a grand scale. Now by that point has appreciation taken off enough to off-set? I hope so, but I think this turn will be a lot different than the last 10-12 years.

I'm still a big bettor that inventory changes, when rates drop, and this is going to cause the correction. 

Cash-Flow is NOT an input, it is a RESULT. 

A RESULT of current market revenue viability, maintenance and cap-x standings, operational expense's. 

Expenses such as insurance, tax's.... 

Thus; Cash-Flow is the WEAKEST metric of use because it is CHANGABLE. It is NOT a constant, and it's movement is NOT fully controllable. I'd argue at best one can influence, not control, expenses. 

So "IF" one argues there "safe" because of Cash-Flow, and that is say 10% of gross revenues, for example $240 per mnth net on a $2,400 rent.....    That means "IF" market rent's compress just 10%, you're Cash-Flow is GONE. 15% your in the red..... 

Cash-Flow is NOT a constant, I can't stress this SIMPLE fact enough. And it seems way too many are high on hopeium with some notion that Cash-Flow from "A" point in time is a universal forward-cast of permeance. 

Furnace breaks, pow there is your net for next year, 2, gone. Water heater, carpet replacement, etc etc.. Cash-Flow is a HOPE, not a fact. 

STR is a great example of this. Many STR's had great Cash-Flow, until they didn't. Operators changed nothing, property is as it always was, but the market changed and revenues collapsed, and with it cash-flow. Those with equity had options to pivot upon. Those without....

[Don Konipol]

I just wanted to reiterate, that (IMO) utilizing “subject to” is in NO WAY fraudulent, immoral or illegal.  So let’s start with the commonly mistaken notion that it’s “illegal”, or the similarly mistaken notion that when one signs a mortgage, note and or deed of trust one has signed a contract prohibiting then from selling subject property without paying off note

Every deed of trust or mortgage than contains a “due on sale” clause states that if a transfer of deed occurs and the note is not paid off then that is a violation of the restrictive covenants and the note holder may elect to accelerate the note.  The mortgage can NOT restrict the property owner from selling the property, with or without paying off the note.  The reason is that the right to sell real property is imbedded as a Constitutional right.  Similarly, one can not sign a contract and have it enforceable if one gives up his Constitutional right  as a result.  So when a seller sells a property and does not pay off the note, he is NOT in violation of any agreement.  Hence, suggesting a sub to sale to a seller is NOT encouraging him to violate and law or any contractural obligation. 

Moving to fraud, fraud involves deception.  If I were to sell my property, and then signed an affidavit stating I still owned the property, that would be fraud.  If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud as I made no deceptive declaration.

Finally, ethics or morality.  Here is where “opinion” comes in. So I will qualify the following with the statement that this represents MY personal “moral” or ethical position, and others may have legitimate differences.

First, I ask if I’m dealing on the other side with “equal” , i.e.  real estate investors vs homeowners.  If it’s real estate investors, then I feel I owe them honesty, but not necessarily any more than that.  If it’s homeowners, I need to ask if they are “sophisticated” business people who have experience in business and real estate dealings, or if not, are they represented by competent counsel.  If the answer is yes we are back to honesty and nothing more. If not then I want to be sure that any transaction I propose is 

1- fully disclosed as to every relevant detail

2- all risks identified and that the other party understands those risks

3- that the transaction is in the other party’s best interest; either because no viable alternatives exist or because they are in such a bind that anything is better than their present situation. 
I fear that many sub to transactions take place with the seller being unsophisticated homeowners who have no earthly idea of the risks involved and potential devastating consequences that can occur. When dealing with a homeowner, I would at the very least insist that they be represented by counsel.  Many (most) sub to investors won’t do this for fear this will kill their deal, which it will a high percentage of time.  But like I said, everyone must determine what is ethical to themselves.  Sub to itself is not illegal, unethical or fraudulent.  Like anything else ABUSE can place it in one or more of those categories.  FULL DISCLOSURE can usually avoid those problems. 

[James Hamling]

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

[Jay Hinrichs]

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

[Eric James]

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

The thing that doesn't sound kosher is having to tell a seller not to inform the bank that they have sold the property. To me that sounds like something a prosecutor could pursue if they were so inclined. Like if someone was doing this egregiously on a large scale making to an episode of American Greed.

[Jay Hinrichs]

Quote from @Eric James:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

The thing that doesn't sound kosher is having to tell a seller not to inform the bank that they have sold the property. To me that sounds like something a prosecutor could pursue if they were so inclined. Like if someone was doing this egregiously on a large scale making to an episode of American Greed.

Yup No question there will be I guarantee it bad actors that will do this and rip rents intentionally and walk away.. I have seen it a few times like I said and that also led to FBI at my office at 7:30am. like they are prone to doing.

[Don Konipol]

A “straw buyer” is someone who is used as a phony buyer because he QUALIFIES for a mortgage while the real buyer does not. In a subject to no straw buyer is used; it’s just a seller selling to a buyer subject to an existing mortgage. Apples and Oranges

Continual complaints from victim homeowners whose credit and possibly lives are destroyed by selling sub to to buyers who aren’t intending or able to make payments thru “tough” times will inevitably bring a call to action to AGs to find laws that can be appropriated to use to file charges against the most abusive proponents. Whether these laws that exist are actually relevant or merely wishful thinking is a dependency of the local and state law itself as well as exactly what transpired in the course of the transaction

I have preliously outlined the steps I would take to ensure (IMO) an ethical transaction. I believe utilizing this would also most likely eliminate any threat of legal action, almost certainly eliminate criminal action. Full disclosure, complete honesty and dealing with only sophisticated sellers leaves little room for prosecution.

The view that sub to, or any other legitimate real property transactional technique is illegal or immoral because it CAN be abused is a simplistic black and white view of the world, and based on a simply incorrect understanding of the law and contracts.  

This is exactly why I recommend that all real estate investors learn real estate principles, real estate law, and real estate finance as a basis for investing or entering the real estate business. 

[James Hamling]

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

[Jay Hinrichs]

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

No argument for me.. I have been saying this from Day one when the Morby and sub 2 guys started touting and charging for this .. that you are going to have a train wreck follow these transactions . And those are from those folks who have good intentions up front then you have the crooks in this industry or those with no morals and lack character. And we know distressed real estate is full of those dudes and dudettes.

[Henry Clark]

OP I’m going to go with you in this.  Although this is nothing I would do.  

Risk Reward.

My wife and I have two different Risk Reward levels.  She likes cash and I hate cash.  As we did our financial planning she needed comfort.  Asked her what her comfort level was in terms of having cash on hand.  She ended up at 5 years living expenses as cash or cash equivalents on hand.  I hate that because we could quadruple that in 5 years.  But I went with it.

My point is I can’t and won’t go bankrupt at this point in my life.  I also won’t go back to 8 to 7 corporate life or greet people at Walmart and live in a trailer.  I can’t take on the exposure inherent in your deals.  

I agree RE will go up and is part of our business model.  Working thru a 75 acre country subdivision with 2 to 6 acre lots for sale.  We don’t build.  We have 50% equity and a loan on the other 50%.  our business model is 120% return before taxes over a 5 year period.  Even if we fail, we come out positive.  

 Now if I was in your shoes??? I would and have risked it all on an investment, not my life style.  My logic was sound, the return was there, then corporate stupidity beyond reality occurred.  The president of the investment decided that -1 plus -1 came out a +2.  Still remember his name.  

I say go for it.   As to the original owners.  A drunk , drug addict, gambler always needs one more fix and you are helping them.  They are okay with it at the moment.  

Phoenix Arizona is a great RE market. It had both one of the sharpest drops in price and sharpest recoveries.  You just have to be on the right side.  

[Joe S.]

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

No argument for me.. I have been saying this from Day one when the Morby and sub 2 guys started touting and charging for this .. that you are going to have a train wreck follow these transactions . And those are from those folks who have good intentions up front then you have the crooks in this industry or those with no morals and lack character. And we know distressed real estate is full of those dudes and dudettes.

So for the last couple of days, I've been thinking. What is the percentage of people that simply walk away from their house and let it foreclose compared to the people that has had a Sub2 gone bad? Without any sort of pre-determined agenda, I think there's more people that has walked away from their houses and let it go to foreclosure. Has there been some Sub2 buyers that have trashed the sellers credit? Probably….I don't know them personally if they did though. I have run into a number of people that have let their house simply go back to the bank, so I am assuming that is way more prevalent…

[Don Konipol]

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-

 @James Hamling

“The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit.”

Since you have already stated that you feel (1) the act of doing a sub to transaction is illegal and (2) that the seller has signed a contract prohibiting them from selling the property unless the mortgage has been paid off (even though this is factually incorrect), the only surprise is that ANY sub to fits your definition of legit. 
Look, you’re entitled to your opinion.  However, “legit” is just that, an opinion.  You originally stated the two misconceptions/incorrect statements I’ve outlined above.  Now you seem to be saying “well, even if what I previously stated isn’t true ( your premise) I still say that sub to is wrong, bad, illegal, and surely will lead to the participants being criminally charged for there activity.  
Yes, some will probably end up on the wrong side of a criminal or at least cease and desist directive.  But the many that do the transaction in an honest and honorable way have NOTHING to fear from authorities.  First, I would be absolutely shocked if any charges were ever brought against participants in a commercial transaction for transacting a sub to deal. Same with 2 investors on a residential property.  Further, I believe as I previously stated that full disclosure will eliminate any possible AG action. 

I personally have done about 6 or 7 sub to transactions, and each turned out well.  On the sell side I did have to take a property back for non payment, but the individual did a “deed in lieu” so foreclosure was not necessary.  I have also observed many investors who have done dozens of these transaction EACH, with no defaults whatsoever.  

This being said, I would only recommend a sub to to a homeowner who has no other option, or for whom the negative consequences and risks are outweighed by the benefits of doing this type of deal.  In other words the homeowner can not sell the property any other way (typically because either (1) they owe more on the property than they can net on a conventional sale or (2) the property will not qualify for financing in its current condition or the current economic conditions.  Or, the homeowner can obtain a significantly higher net price doing a sub to AND (1) is okay with the fact that as long as the mortgage remain unpaid his borrowing ability is impacted (2) understands the risks and potential negatives and (3) has a “what if” plan that can be executed. 

Most sub to transactions are done WITHOUT the participation of a third party intermediary (broker). Since you’re a broker, I wonder if there’s not an inherit bias in your attitude toward a method of transaction that eliminate the broker commission from the equation?