Do back taxes & defaulted mortgage payments be in P&S contract?

Question

If I find a motivated seller say from an advertisement that wants to sell their home because they missed tax payments and mortgage payments...Do I include that the buyer of the property will be covering these costs in the purchase contract or is it just something that is commonly known and does not need be included?

Also, what are the things you have to watch out for when dealing with payments that are behind? (Tax & mortgage)

---worried about tax liens and a property being in foreclosure process

Also, what are the things you have to watch out for when dealing with payments that are behind? (Tax & mortgage)

---worried about tax liens and a property being in foreclosure process

Ned Carey · Answer

@Jose Falconett absolutely not. I have never asked for a payoff statement before putting a property under contract. This is basically the title companies job.

Most contracts say  something like "Seller to provide marketable title free and clear of all encumbrances" Generally all back taxes mortgages and other debts attached to the property are the responsibility of the seller and are taken out of the seller proceeds. Let me give you an example; you are buying a house for $100K. There is a mortgage of $80K.  The title company will pay off the mortgage and the remaining $20K goes to the seller. There is really no difference what kind of debt it is or whether it is current or behind. It is the same process.  This works fine 99% of the time because the selling price is more than the seller owes.

Now when it comes to creative deals, sometimes I offer the seller a Net price and say I will be responsible back taxes etc. and for all costs of the sale. When I do that is when I use a contingency like I mentioned a couple of messages earlier. I do this when the seller doesn't even know how much he owes and just wants to know how much he gets to walk away with. The advantage to me, is I can now potentially negotiate with creditors with debts attached to the property.

This does  not happen when the seller is current on all debts and the property is in good condition. It can work very well when the creditors have not been paid in years and the property is in poor condition.

Does this make sense?

Ned Carey · Answer

@Jose Falconett unless someone has foreclosed against the property for a debt attached to the property (ex: Mortgage foreclosure) then those debts simply get paid out at settlement.  A title search would find that and not even do the settlement. Make sure you get title insurance to protect you if the title company makes a mistake.

Ned Carey · Answer

@Jose Falconett  I write something to the effect of "Buyer agrees to pay all back taxes and other debts attached to the property as well as all costs to to transfer the property into the Buyers name, Contingent upon Buyer researching and accepting those costs as reasonable."  I want an out, if a title search turns up something that could be  deal breaker.

Ned Carey · Answer

@Jose Falconett often wholesalers will start title work and require the end buyer to use their title company or pay an extra $X. Once it is under contract then it is worth paying some money to get the title work done.

Many areas have online resources to check public records of various types.  A good place to search for them is http://publicrecords.netronline.com/

Jose Falconett · Answer

Terrific, man thank god for your existence haha.

@Ned Carey Since investors rely on the public records search for the Note to find out what is owed on the property through the amortization schedule calculator, it would seem that this is a educated guess so how close is the mortgage debt to the calculation?  (Interest rate, monthly mortgage balance, is not included on the note, and if there was a second mortgage)

If I were to wholesale the property, I want to make sure to convey to an end investor buyer that I am positive this is the current mortgage balance/debts to not waste their time.

Jose Falconett · Answer

@Ned Carey Was reading about the "payoff" statement. Is this important to have before putting the deal under contract? I read this can take up to 7 days to receive in the mail and that doesn't include mailing a request to ask for one (another 5-7 days)

Jose Falconett · Answer

@Ned Carey right a title search should relieve that worry but before it goes to closing I want to be worry free, how do I mitigate the tax and mortgage default payments that are months behind? is the property not able to transfer to buyer after a certain amount of time in default (Tax or mortgage)?

Jose Falconett · Answer

@Jonathan Twombly What do I have to watch out for when agreeing to cover these defaulted payments that made them want to sell in the first place?

I worry that it may be in a tax or mortgage foreclosure proceeding affecting my claim to buy the property in the first place.

Like someone holding a tax lien on it, pre-foreclosure, foreclosure going through the judicial/nonjudicial process.

Jonathan Twombly · Answer

@Jose Falconett  You have to deal with it one way or another - either part of the purchase price will be put into escrow for the payment of these items or you are absorbing it.  But either way, the solution needs to be written into the PSA.

Never leave anything to "commonly known"!

Do back taxes & defaulted mortgage payments be in P&S contract?

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