Can you take over FORECLOSURES subject-to in FLORIDA?

[Jordan Archer]

Hey Florida BP-er's,

I heard that if someone has been filed for foreclosure in Florida, who is also an owner occupant, you CAN NOT take over their existing loan subject-to...

Can someone verify?

Thanks,

Jordan

[Dion DePaoli]

That is not entirely true.  There are concerns with Equity Skimming amongst other things in Sub 2.  

What does the greater plan look like?  What type of loan is it?  Is it all negative equity?

[Bill Gulley]

But, mostly true! If you had to ask the question, that means you'd probably be better off not getting involved.

There are some new federal laws protecting homeowners in FC, with teeth as well as laws pertaining to causing a bank any delay in FC and interfering in a FC.

I'm sure Dion is mentioning aspects of unique situations where you might have a smallish bank or lender, having a cash flush pocket, good credit and good reputation of a buyer, I've pulled some out of the fire here, but with the bank's consent and very early in the default and process. There are exceptions, might be .05% or something.

I doubt it would be possible for a residential buyer as regulators will be looking at the process and disposition, banks can't just cut deals on the side. They can do short sales if you hold your mouth just right and the borrower qualifies. For a short sale, I'd suggest you get an agent with experience with that lender. :)

[Wayne Brooks]

@Jordan Archer 

You better plan on bringing the loan current, and keeping it current.  If you don't, and you do 2 of them, you qualify for the big house...free room and board, health care, meeting a wide variety of new and interesting buddies, but with a fairly restricted schedule.  What exactly is the exit plan?

[Jordan Archer]

@Dion DePaoli I wouldn't go for negative equity at all. I would only do deals with 95% loan-to-value and below.

@Bill Gulley Thank you for the warning. 

1. I would sell the home retail

2. I would use a wrap to seller finance the property to less qualified home buyers. 

3. I would wholesale to a flipper

4. I could rent, depending on the numbers.

5. If I needed to, I'd rent out my current home, and live in the acquired property until it sold.

[Bill Gulley]

@Jordan Archer 

Are you asking how a pot full of federal laws stops you from doing things? They don't stop you, just like a murder charge doesn't keep someone from shooting and killing someone.

Search "Foreclosure Protection Law" that's not the name of it, but it should get you to current laws that now protect people in foreclosure. You need to be an attorney, or a HUD licensee credit counselor or a non-profit organization to approach people in foreclosure with any method to assist these people in those circumstance, the law was adopted due to all the scammers with "help you" programs which includes investors buying them out.

Banking laws cover any person who interferes with banking operations, any information they receive in connection with a foreclosure which they rely on that is not genuine or truthful or that causes any delay or expense falls under the realm of communications with an insured lender. This can also lead to bank fraud which is different than general fraud matters, an actual loss does not need to be suffered, submitting false or misleading documents or communications can fall under this aspect.

You posted this in wholesaling, that general means you don't intend to buy in your name, any sale contract submitted is not being done in good faith if you have no intention to buy yourself, there is not "out" or excuse of doing something different that is not fully disclosed.

As to your #2, you will need to sell an owner financed deal to a QUAILIFIED buyer, not a "less qualified" buyer. You need to read some Dodd-Frank threads here on BP, better yet read Dodd-Frank, but I doubt you can read that law and understand it as many attorneys are having difficulty understanding it.

Read seller financing in the forums, not on podcasts, blogs or you-tube, those who know don't go there. Gurus go there, investors who think they know, stay away from that crap.

Financing is higly, higly regulated much more than real estate, real estate laws are in a quart jar, financing is contained in 55 gallon drums. So far, we have 3 bank examiners or regulators on BP that I know of, one compliance guy and one mortgage servicer having clear knowledge of financial laws, none of the attorneys on BP have commented that much in the financial compliance arena. That means that not one damn guru has a clue, none, no RMLOs, none, no hard money lenders, none, no stock broker/mortgage brokers, none, meaning no one other than those I mentioned have loan compliance and servicing experience for anyone to learn seller financing from. We probably have hundreds who think they know.

Your business logic does not apply to financial laws.

You might be a really smart guy, you do not have the basic knowledge or skills to do seller financing IAW laws or predatory lending type matters, obvious by your #2 statement. Not trying to belittle you, you can tell me the same thing as to me wanting to do brain surgery, I'm not qualified to do brain surgery. The difference between us is that I know I'm not qualified to be a surgeon. You also don't have the skills or knowledge to deal with people in foreclosure and have contracts presented to banks.

You have a lot to study before you hit the streets trying to wholesale and do seller financing or deal in foreclosures. What you really need to know is not on BP! And it sure isn't on any guru wholesaler site! :) 

[Jordan Archer]

@Bill Gulley I appreciate the honesty. From what you say, it sounds like no (very few) investors have the ability/knowledge to do these transactions legally. However, it also seems like a ton of investors are highly successful using these techniques...to the point of making millions. Are all of these people just breaking the law blatantly, yet running highly successful businesses, or do you suspect they have more expertise on the field than they make it seem?

[Bill Gulley]

Look, if you are the type that just wants to justify doing bad business practices out of your greed, I have no concern at all for what you do, other than the interests I'd have for others you deal with.

NO ONE MADE MILLIONS and none run successful RE businesses doing seller financing TODAY making millions, Dodd-Frank became law last January and the SAFE act last year. MILLIONS were taken (not made) running booze during prohibition, if your goal is to be a gangster.....hope you end up as one. MILLIONS were made running whorehouses in gold rush towns too, slave traders made Millions, things change!

I'm pretty sure I made more doing seller financing, from the contracts and property sales than ANYONE on this site and what I did was NOT what you were implying, nor what the con artists have done, (Lonnie Deals) cheat and repeat, my money was made fixing what these scum suckers did and by assisting in making deals work and refinancing them, my seller financed default numbers were better than the average for conventional financing!

You are totally mislead, under false impressions, being new means being naïve.

If that's you in that avatar, I can see you are young, you're probably ambitious, you probably are in a hurry to grab your perceived riches and easy money in RE, you took the guru and con artist stuff hook line and sinker because that's what you want to believe. No one likes to hear, no, don't do that to make money, but you also don't understand how many liars, cheats, con artists and unethical people there are dealing in RE, many not doing deals by themselves, but fishing others into some business operation feeding off newbies with programs or methods.

All I can do is warn you and point you in the right direction, if you choose not to listen, so be it, listen to anyone you like and justify your actions anyway you like, your justifications don't mean squat in front of a judge or other professional types in RE.

Things have changed, some old cuss talking big bucks he's done for the past 30 years is most likely a bald face liar, but what he use to do is now not acceptable or legal now in financing.

Don't forget, prisons are full of smart people. :) 

[Dion DePaoli]

Originally posted by @Jordan Redar:

1. I would sell the home retail

2. I would use a wrap to seller finance the property to less qualified home buyers. 

3. I would wholesale to a flipper

4. I could rent, depending on the numbers.

5. If I needed to, I'd rent out my current home, and live in the acquired property until it sold.

 Jordan,

I would point out the 'entire' picture does not seem clear from your vantage point. At 95% LTV many of the above solutions are not really solutions.

Response to your numbers above:

1.  Selling a 95% LTV property will mean you bring money to close.  5% equity will be consumed by paying agents and closing costs.  You will be short anywhere from 3% to 5%.  

2.  The operable wording of 'lesser qualified home buyers' is problem.  That at face value is a predatory action.  Being charged with predatory practices can get land you with large legal fees and penalties aside from risks of actually being sentenced to jail time.  

Further, a new loan does not automatically line up with an existing seasoned loan.  The amortization can create a large capital demand on you.  Lining up loans is not as simple as 5% underlying loans plus 2% for you equals 7% new loan.  

3.  This does not make much sense.  A "Wholesaler" operates at a discount.  In order to get out whole you need to sell at 95% plus closing costs.  (See number 1)  So, you imply here a wholesaler will work on a deal where there is no margin and that a buyer (from the wholesaler) will pay over the value of the property.  There are so many stretches of the imagination in there it's like I just wen to yoga practice.  

4.  Perhaps one of the only reasonable ideas you have.  Details to this matter.  Just because you can rent doesn't mean rent will cover the obligation.  Both property and debt.

5.  While the commitment there is admirable, it is probably more of a dangerous idea than a redeeming one.  Just because you are living there does not mean avoiding risk of foreclosure and loss.  That then just puts you in your own harm's way.  Hopefully you are aware of Due On Sale risk.  Just because you make payment does't mean the Mortgagee doesn't foreclose.  

There are situations where Sub 2 can be a well suited strategy.  That said, it is not a fits all idea.  It seems the masses who are pro-sub 2 tend to leave that bit out.  The amount of situations where it could be viable are far less than what is sold to the public.

[Jordan Archer]

@Dion DePaoli Thank you for offering objections. They really help for thinking a plan through.

Let me clarify a few things.

1. This option is more geared towards properties with larger amounts of equity. I would perform a double closing, where the new buyer pays the closing costs, plus a 10-20% down payment. I would make my money off the 5% equity, which would be 5k if the house were a 100k property.

2. I have no intention of operating an unethical business. By less qualified, I meant someone unable to qualify for traditional financing from a bank. I'm glad you pointed out the fact that 2% added to a 5% loan doesn't line up with amortization. I plan on adjusting accordingly so I don't end up requiring large capital demand.

3. This again applies to properties with wholesaleable equity (at least 30%).

4. I wouldn't buy sub-to unless the numbers were in my favor.

5. I agree that this isn't favorable.This would be a last resort move.

Finally, I have a buyer friendly contract that would allow me to exit the deal if I didn't have a buyer lined up. I wouldn't take on a property if I were unable to finance it.

[Jordan Archer]

@Bill Gulley Your super hero-like devotion to protect people from scammers is admirable. I can tell you do your best to make sure your business operates with the highest moral and legal standards. I would hate to give this community of great people the impression that I intend to do anything that is morally, ethically or legally unsavory. That said, I WOULD appreciate it if you used a little more discretion when answering my questions.

Additionally, I know that being successful in real estate doesn't mean "easy money," so I am beyond that point on the learning curve.

I DO, however, appreciate your investment to this community, and your willingness to help new folks, like myself, stay out of trouble. 

As you might have noticed, I am indeed curious about sub-to financing, because of the flexibility it adds for making deals. Maybe podcasts and blogs are not the place to learn about seller financing, I can see the ignorance of that. But I do hear about seasoned investors doing these deals all the time on podcasts and blogs, and find it hard to understand how they can be doing them, if they are as illegal as you say. And I mean DOING BUSINESS, not scamming or taking advantage of people like you make seem is the only possible result of doing a sub-to deal. 

Help me understand! 

Thanks : )

[Bill Gulley]

@Jordan Archer 

Sorry, but II answered your question as it needed to be, I'm not your momma.

Your are arguing, when you're told something, you're not accepting what you are told, you're justifying your ideas. You have bad ideas at the point of your education, training  and experience. . 

Have had the first two semesters of statistics in college and business finance? If so, I can explain the applications of interest at different rates on changing balances of each payment period of uneven amortizations, if you haven't had these classes, go take them as they have the foundations of the understanding you will need to go further.

Your statement to Dion in #2, "I plan on adjusting accordingly" you can plan all you like, you won't be able to do it without the education necessary to do that. Might as well say you're going to figure out the trajectory to send a rocket to the moon. Might be able to find a hedge fund manager to help you and run it through their software.

When your interest rate disclosure is not within one tenth of one per cent, you'll be in violation of federal law, when the application of interest and principal is incorrect, you'll be in violation again, when your tax submissions aren't correct, you'll be in violation of the tax code, as to TILA, penalties are $100,000 fine and up to ten years in federal prison.

Just a simple basic RE question; Can you can name just 4 types of deeds used to convey interests in RE and how they are used?  No? Then you need to study RE basics because what you think you know isn't likely what you really need to know before you begin designing real estate transactions. I'm not saying learn graduate level RE subjects, I mean what any RE agent must know to get a license, that is a basic education.

Do not do wraps that combined different principal amounts, interest rates and amortizations unless you have been properly educated in a formal accredited school or professional institution or by some government agency, no guru teaches this, it's beyond their scope of technical knowledge, no investor, no mentor or coach does this properly without this level of education. Don't know how much clearer I can make it.

Now, how do you get around this issue, sell on a straight Sub-2 with an assumption of the existing loan at its payoff balance as of the day of settlement at its remaining amortization and payment amount. Then use a second mortgage to carry back remaining equities as you would with a second mortgage. File a deed of trust to secure your second, that gives you the right to foreclose in the event of default.

Forget being greedy trying to make interest off the underlying loan unless you have the education and experience in working with blocking mortgages as is done for securitizations. The idea of doing this has been around for years, when I began it was obvious to me, however after giving it some thought and working a deal out, I decided the brain damage wasn't worth the effort nor was the risk, that spread was probably 10K. Now, I did a commercial transaction where the underlying mortgage was just over 300K, for that, the brain damage was worth putting a combined note together, it also required a partitioned note that no one on this site has ever done, I'm sure of it.

I'm not trying to be condescending but, I'm not typing 200 more words to *****foot around the matter, I'm not the smartest guy on the face of the earth, I'm saying you won't be getting advanced financial information on Biggerpockets or any internet site, I don't think that hedge funds put their analytical data or information on the internet, could be wrong, but I don't think so. I can tell you that government agencies, regulators certainly don't put such formulations on the internet. And, I won't either! I don't give Uzis to eight year olds, so such things won't be posted, it would also require 20 times what's in this post, so don't look for it here.  

If you read in some truck magazine how easy it was to rebuild a Cummings diesel, would you just walk into a garage or shop someplace and tear into a rebuild without a manual or specifications? I don't think anyone off the street would do that who had not been trained. Would you walk in off the street and expect to do brain surgery at the hospital, even if they let you in? No, you have common sense. So, you want to fly that 777 and you've been checked out for a powered parachute, really?   But seems when people walk in off the street and they hear how easy it is to seller finance a deal, from some clown, they lose all common sense and actually believe they can be a lender. It's not as hard as brain surgery but it is harder than being a mechanic. Because of the new laws, seller financing is about as difficult as taking off in a twin engine plane, use to be like unpacking a powered parachute. It's not just forms anymore.

How do you get caught? Again, the borrower has to go get a loan later on, the deal is then exposed, people also die, become incapacitated, get divorced, take bankruptcy  or they may just talk to their attorney about something else, lots of ways for your deal to surface and unravel under the new laws.

Now, I'm outta here! Got places to go, people to see and they don't argue or ask for hand holding to give them free mentoring or an education, they also just take my advice. :) 

[Darrell Shepherd]

Great advice on here, as usual.  I've done some of the stuff Bill is talking about, especially the wrapping different rates and mortgages and such and its a bookkeeping nightmare.  Listen to that man, he knows his she-at.

Anyway, just wanted to chime in and say that the sub2 thing is taught as a way to do deals when you don't have money, and its possible to do things that way, but its a gamble and one you're taking with someone else's credit. I've done it plenty, but I'd never wrap or L/O a sub2 these days now that I know what I'm doing and the new laws that are in place. Just not worth it. I'm in Georgia so cant speak authoritatively about Florida law, but I'd wager a guess you could buy the house sub2 and pay the arrearages to pull it out of foreclosure, then make the payments/repairs and retail it without much trouble. I'd do that in a heartbeat- "OK, so I'm gonna put my money up to pay off the money you owe, pay for the repairs, and give you a little moving money, then I'll sell the house. It doesn't make sense to go get a loan just to pay this one off for the few months to get that done, so we'll just leave it in place until I can get the house fixed up and sold. I'll make all the payments, which will actually help your credit as you rebuild. Shouldn't take much more than 6 months, but I'm going to write it up that it'll be paid off within 18 months just in case. That sound fair?" Pretty easy pitch.

The problem with wrapping them is you give up control and if your buyer fails to pay and therefore your seller gets screwed because you don't have the money to pay the note while you spend a year (Florida takes forever right?) foreclosing, you are on the hook for getting them there. L/O's are similar, but at least you still own it and its an eviction. Then there's the BK risk, death risk, etc. These things happen. Morally or legally doesn't really matter, if you can't make the payments for extended periods of time with no income from the house, you shouldn't be selling the deal on terms IMO. I had a years worth of payments on everything I owned and it wasn't enough to weather the storm when the fit hit the shan in '07 or so. I didn't screw over any of my Sub2's, but it was awful close and the stress of that stuff still haunts me.

If you really want to do that kind of thing, you should do the latest thing the gurus have come up with which is basically brokering the L/O for the seller. Work out terms, then find a tenant buyer with a down pay enough to bring the loan current and pay you something without taking on the ownership.

Sub2's have a place in the investing world, but remember, if you are owner financing you are dealing with people banks wont lend to. There's a reason for that. Only about 25% wind up buying the house. They often leave with 10k+ in repairs on their way out...Ask me how I know this.

Also, I'm with Dion- 5% equity is a no go. It kinda cracks me up when people that have never done a deal correct the people that do them regularly. 5% is NOTHING. It will get evaporated in an instant on any RE deal. Besides, if you want to work that hard for 5%, go get a license and do agent stuff. Your assumptions that a buyer with 20% down willing to pay full blown retail as soon as you market the property (without an agent or access to MLS) is frankly laughable. I do rehabs and my properties are very nice and priced right and I factor in 3 months and 6% to sell them, not to mention the few K in concessions I seem to always have to give...Now if you get something at 30% less repairs or a nice house that'll fit the 2% rule the wholesale option is pretty legit. I could sell either of those in an hour with a phone call or two...

Anway, best of luck to you, I've done well over a hundred Sub2's, and I'd do another one in an instant if it made sense, but you really should take in the advice given on here. Its solid.

[Bill Gulley]

Thanks Darrell, I have a few moments before I take off for DFW.

Other issues; predatory lending and predatory dealing, search those aspects, dealing with non-qualified people. You really need an underwriter to peg what needs to be done and how long it takes to get them to qualify.

If you do L/Os, understand that if you do repairs, you need the seller's cooperation, as neither the lease or option gives you the rights necessary in title to do repairs or improvements. Might consider a construction type contract, if you can without a GC license.

One thing to stress, any type of installment purchase or delayed closing requires you to look into the future to qualify the buyer, your assumptions aren't good enough, you need to document their current position and map out what will take them to payoff the deal as agreed. In order to do that, you need to be familiar with conventional loan programs to meet the future requirement. You have to show how you're going to hit the target, not just that you'll shoot in the dark and hope you hit the target.

Agree with Darrell too, you can't be doing Sub-2s relying on income generated from the property as you can get hung destroying someone's credit.

I really think that our newbies hear the guru stuff, about disclosures and getting silly CYA documents signed, reality, there is nothing done in RE without risk. Most risks for investors I'd say come about from torts, a theory in law you need to understand. You can't really disclose yourself out of responsibilities with agreements. To manage risks you need to know what the pitfalls could be and the applicable laws to your transaction.

Sub-2s have their place, but dealing with foreclosures is pretty risky as that loan is already on the radar of that lender, someone will be watching that loan over the next year, sort of a watch list, so trying to sneak along will be tougher to do, especially with a smaller local servicing or portfolio lender.

And, again, you have the issues of dealing with someone in foreclosure, not really a place for newbies to play unless they can actually buy it and buy it quickly. :)  

[Jordan Archer]

@Bill Gulley 

Thank you guys. This is really good information on how you can get in trouble working with sub-to; and how you can do them effectively. 

I am far more interested in buying sub-to and selling retail, than I am using a wrap to seller-finance. Additionally, buying sub-to on deals that have equity.

Though I have gone to college, taken courses on business law and accounting , where I've studied torts and done countless interest rate adjustment problems, I still agree that I am in no position to act as a professional on the topic. I'll leave the seller financing for another time.

Thanks again for the advice!

[Matt Robinson]

Jordan, to answer your question regarding Florida, it truly depends on whether the person is in foreclosure or not.  If the person is in active foreclosure, meaning the Lis Pendens has been filed, then you can not take it subject to the existing mortgage in Florida.  Foreclosure protection laws signed by Charlie Crist, before he was run out of town on a rail for being a flip flopping politician who can't even decide which party he is in, state that if a property is in foreclosure and the title is transferred, then the lien that was in active foreclosure must be FORMALLY ASSUMED or PAID OFF, as well as any other liens which would not have been extinguished as part of the foreclosure.  Otherwise it's a violation of law, and could result in a huge fine and some jail time.  My understanding is that you can take it subject to all you want if the house is not in an active foreclosure lawsuit, as long as proper disclosures are made to all parties involved, but you should obviously contact a local attorney for advice on that.  Best wishes to you.

[Charles Hernandez]

First, no disrespect to anyone but I think someone needs to chills and beam into the 21st century. I know this is an old post but I thought I would jump in case someone else needs perspective. Yes it is true you can't meddle in the foreclosure process, you can't make undeliverable promises or guarantees, and it's true you have to abide by Dodd-Frank, and use RMLO's on S/F deal with a QM and so much much much more; however, offering to pay a reinstatement, having an owner deed property into a Trust, you becoming Trustee, having them sign over Beneficiary Rights to you, and there-after you renting, wrap or converting home to airbnd is something done everyday in Texas! Trick is to make sure you are compliant and using a knowledge attorney to guide you through every transaction: Disclose Disclose Disclose! We own almost a 100 properties using this method. We've had initial owner and buyer's file Bankruptcy on us, we've had to file foreclosure on Wrap deals, we have to evict people, we have to sue initial owners on HOI Claims, we had to go to court to answer claims by initial owner and buyers on wraps on whether or not the transaction was legal - guess what, we have never lost once! Learn your craft, learn what you can and cant' do, do good business and go make some investments!