Wholesaling Subject To's?

Question

Just looking at this from every angle...

Is there any reason I can't wholesale a property I just picked up on a Subject To transaction?  Since the new buyer would be using a new loan or cash, I don't see a problem here - unless you can not change title to the property that quickly.

Any thoughts, warnings?

Blake Copeland · Answer

The only issue I see here is if your end buyer has traditional financing to cash you out and cash the seller holding the mortgage out.

If they come in with mortgage money there may be title seasoning issues and the bank may not lend to your end buyer until the property has been owned by you for at least 90 days. I know this is frequently a roadblock with wholesaling REO transactions depending how you fund them.

Other than the seasoning issues with your end buyers mortgage loans, I think you can buy and sell Sub2's all day long. You can even just leave the original loan in the sellers name and then deed the property over to the end buyer for an assignment fee.

Example existing loan is 100k... seller is behind 3k on mortgage payments... House is worth 140k.

You work out a Sub2 deal and get them caught up on their payments by selling to a buyer for 112k. The buyer actually only has to come to the table with 12k plus closing costs though.

4k in back payments, the remaining 8k can be distributed between yourself and the seller, and the deed can be quitclaimed ot the end buyer and they keep maing payments on the loan and only invested 12k to get into a $28,000 equity position.

Account Closed · Answer

Ryan,

You are welcome.

Good luck on the deal.

John Corey

Ryan Urban · Answer

Thanks John, that's exactly what I was looking for.

I'm a little wishy-washy on the Subject To strategy.  I've seen many comments here and there about the possible ramifications of it, and I'm still trying to decide if I'll go after it.  I've even seen some comments that certain states are considering outlawing the practice.

I'm looking at these kinds of deals to simply fund more standard down payment/buy & hold purchases without having to invest any more cash than I already am.  Also, I'd never sell the property on a Subject To basis, I agree that it's not ethical to have the original owner's credit at the mercy of someone I don't know.

I'm also having to drag my feet a bit as I wait for a bank to give me a "yes" or "no" on an short sale bid I made:  Fourplex valued at $270K, my bid is $215K.  Got to it right before foreclosure.  Once they finally give me an answer I'll be able to make other moves.  Should be any day now.

Thanks again.

Account Closed · Answer

Ryan,

Drop the term wholesale and look at the specifics.

You bought a property. You took title and are now the owner. You have every right to sell the property if you want to do so.

If you sell a property that you purchased subject-to make sure you are covered. If the new buyer is cashing you out and otherwise paying off the existing financing then you are in a good position. Your obligations to the prior owner who is still on the present financing will end with their loan being paid off. If you do any sort of deal where the existing financing continues to stay in place you will be liable for your promises to the seller you purchased from. If something happens and their credit gets damaged you can be sued.

So, selling what you bought subject-to soon after buying is a great idea other than the costs associated with the two COE. If you are happy with the profits then take the deal and move on.

John Corey