Is this a good deal for me? Pros and cons Subject To

[David Mitro]

I own a quad that doesn't fit my portfolio anymore so I'm trying to sell it. I have had it listed since July, with no offers. I've lowered the price twice, each time by $10,000. I reached out to someone today who sent me a letter and he would like to buy it subject to.

There is a loan of $185,000 on the property in my personal name with Wells Fargo.

Total rents are $3,010 a month and the mortgage payment, including mortgage interest, taxes and insurance is slightly over $1,800.

He proposed paying me $10,000, taking care of my listing agent and paying all transfer taxes.

We would transfer the deed into a trust that he is the trustee of, sign an agreement that if he missed three payments the property would come back to me and an agreement for him to sell or refinance within 5 years.

The guy was calling from addicted2realestate.com

Assuming I couldn't net more than that by keeping it listed, where is the risk and downside to me?

[Dion DePaoli]

Not the way I would structure that.  First problem is risk of Due on Sale for the transfer.  The loan can be called due in full for any transfer in whole or in part of the property.  So, you have risk that the transfer would require you to pay the loan balance entirely in 30 days of transfer or face foreclosure.  With the aforementioned sales activity, that risk would be concerning.

You wouldn't be able to enforce the contract terms of missing 3 payments and surrendering the property.  He could comply but that is a hope not a plan.  If for some reason he doesn't want to comply, you would be forced to foreclose on him.

In this setting an installment contract, where you hold the deed until you are paid in full is probably the safer instrument or a lease option.  I wouldn't surrender the deed to him if he can't pay for it.  I would also point out, he probably doesn't need 5 years to be able to refinance, why isn't that a shorter time like 12 months?  A refinance is easier to qualify than a purchase and his barrier to refinance would title seasoning.  Not all lenders will treat the lease or installment contract as a refinance so he may need to shop a bit but some lenders will treat that time period as ownership and allow for a refinance.  

The reality that I think you may need to face is the property is still over priced.  That is important to address in a mature fashion as the entire exit here is based on financing and if the appraisal doesn't support the sale price the buyer has to come out of pocket for the difference or not get the loan.  

The benefit of an installment contract is the buyer can operate the property as an owner and pay down the total due for sale earning equity or bring the actual funds needed at the time of financing to an acceptable market level.  

Lastly, the loan is in your personal name, so you probably do not want to turn total control of payments over to them.  You would then be discovering delinquent payments or worse, missed payments are occurring after the fact.  To that resolution, simply, he pays you and you pay your creditor.  

Like I said, I would humor the structure with a lease option or installment contract and you can talk to your attorney who draws up the agreement about having the rents assigned to you in case of defaulted payment.  

That puts you in the driver's seat and gives you some protection.