Creative Finance Question

[Dave Hurt]

Hello everyone, 

I have encountered a very motivated seller in my direct mail campaign, and she is open to creative finance strategies (in fact she prefers monthly income over a lump sum) - this is exactly what I've been seeking but now I have a few questions regarding the structure of the deal. 

To briefly summarize, she is widowed, lives 6 hours away, and moved out when her late husband passed.  Since she moved out of the property in '08 her friend has been living in the property at about $250/mo below market rent, and has not been taking care of the property (the seller's words - I am viewing the interior today).  The taxes for 2015 are delinquent, and the seller has a 35k equity loan against the property that she can barely make payments on as she lives off of social security.  

ARV for the property is around 85k, and I won't have a rehab cost estimate until later today once I've seen the inside.

I mentioned subject-to in my conversations with the seller, and she is very open to the idea, but would want something on top of that (the amount of which I can gauge better once I've seen the inside).

In the interim though, my question is this: would it be possible to take over the seller's Home Equity Loan subject-to, and she carry back some paper in an additional amount?

e.g. 35k subject-to, seller finance 15k, and I catch up the delinquent tax bill

She just wants to be done with the property, but does not want to sell all-cash due to the tax hit she will take, and she likes the idea of some passive monthly income - I'm just trying to figure out the best way to approach the deal.

Am I over-complicating it?  Could we just do a regular seller finance arrangement, and she continues to pay down her equity loan, building in a small arbitrage play for her?

It is very important to me that I do what is in her best interest and solve her problem.  She has spoken to 6 or so other RE investors and said she was only interested in working with me - because I took the time to listen to her issues and am open to creative methods.

Thanks guys and sorry for the narrative!

[Jackie Lange]

instead of buying subject to the mortgage than creating a 2nd note, it would be much better to wrap the underlying loan with your new loan ( new balance).  This also gives her the security of getting a deed of trust of mortgage so she can foreclose on you if you stop paying.  Not that you will, but explaining that to her will make her feel more comfortable with creative financing. 

You'd make the underlying loan payment, then send her the balance of the mortgage payment each month.  

Be sure to check the note for the underlying mortgage. Make sure there is no ARM or balloon built in to it.

when you buy, you'd want to take title in a Land Trust.  And it would be better if it had the seller's name in the title.  If seller is Sally Jones, you might call it the Jones Trust #237.

Using the Trust will make it less likely that the lender will call the loan due when there is a transfer.  

In 20+ years, I have bought a lot of properties Subject-To but never had a lender call a loan due because I always take title in a Land Trust. 

You'll need a power of attorney for you to sign on behalf of the seller for anything related to the loan or insurance.  And you will need a letter of authorization to contact the mortgage company. 

Speaking of insurance, you will need to get a new insurance policy.  Be sure to name the seller as additionally insured.