These guru's must be stopped. What's going on here?

[Account Closed]

Hello all,

After doing a ton of research, it seems to me that real estate investing gurus and their "subject to" teachings are going to turn good people (ignorant people) into felons.  Just because someone is ignorant, doesn't make them a horrible human being. It seems to me that good and perhaps slightly desperate folks are drinking the "subject to" Kool-Aid. 

They're teaching people to "acquire" property using "subject to" and cash flow it via lease options.  I've consumed copious amounts of  content on the subject - free and paid.  

I notice these folks conveniently ignore what can go wrong when Bob pays your lease option fee, first month, and security, then loses his job 12 months later.  They don't tell you what to do then, and that depending on the state and the number of these deals you have running, you're instantly a felon when you fail to make payments and the home is foreclosed on.  

They don't tell you that you cannot evict Bob because he has equitable interests in the title and it can take 120 days or more, plus legal fees, plus repairs, plus MORTGAGE payments, to finally get him out of there.

I was sitting here planning to lease option my primary residence and I wrote down my "doomsday scenarios" and realized that I have to spend more money than I thought for legal help to understand and / or mitigate the risks...  

I'm wondering how this subject to --> lease option business has not been exposed for what it is - a minefield rigged against those who are bad at risk management. What are you guys' thoughts? 

[Jay Hinrichs]

Originally posted by @Natalie Schanne:

Jay Ballman - It’s a civil matter. Unless you were committing fraud in your dealings with people, everything’s on the up and up. Business has risks. (Note: I’ve never bought this way but have tried to buy subject to someone else’s private loan agreement.)

If I buy a house subject to your mortgage and I stop paying your mortgage, technically you’re still on the hook for your own mortgage. You were trusting that I’d pay. You are the one who would get hit with nonpayment credit problems as the lender forecloses on the asset.

Hopefully if I am selling the lease option “rent to own” correctly, I’m collecting 5-25k cash upfront before person C moves into the property. In the worst case, this extra money should buy me enough time to continue to pay the mortgage on time as I evict that person if they stop paying the rent and allow me to re-“rent to own” the property or rehab and sell it.

Subject to money is a lot cheaper than hard money if I’m paying 4-5% interest instead of 10-15%.

 it certainly can be a criminal matter .. I rescued a company that drank the sub too lease option kool aid in Oregon..

they did about 40 of them..  well since this is a make money on the delta program with very little true cash and since they really had no ability to refi or pay the underlying off.   

Now this company went one step further and recorded owner carry contracts to the end buyer  so more of a wrap program.. well those buyers started to default.. and since this team had the wrap they needed to pay the underlying and well it was a house of cards.. once they had 10 to 15% vacancy or non pay they could no longer debt service the underlying and now the original owners were getting notices of default.. and then they start filing complaints at the AD.. and well it becomes a scheme to the state.. I jumped in and help them through this crisis had i not though I have no doubt Oregon would have filed a criminal proceeding.. I had another borrower of mine do this with intention to get as many homes as possible and just rip rents.. he got 5 years.. Now i know most are not criminals and have no intent of doing this.. but when they are under captialized and have no way to fix things it gets serious really fast..  sub too wrap lease option etc.. is a fine method but in my mind only to be used by very financially capable folks.. not folks that are trying to get rich on OPM and no credit.. 

and in some states the persona with the lease option can hole up and judge may make the lessee do a foreclosure giving the lessor a right to cure..    so this is very state specific.. and at the end of the day.. the original owner takes on massive risk to their FICO and in states were they can get a monetary judgement on top of a foreclosure they risk that as well.  The original owner is not in title and really in a bad position..  there can be agreements to remedy some of the down side but if the middle man or the end user goes dark this is a tough spot to be in for the original seller..