All Forum Posts by: Jon Quigley

Hello. I've been doing a ton of study on Sub2's recently and have a question.

Does a Sub2 include a written agreement that if I the investor were to not make payments on the original loan, then the seller has the right to foreclose on the investor? Is this a common agreement that gets put in place on a Sub2? If so, then I don't see why the references to FBI/AG and such would be a risk because that agreement would clearly show it's all on the up & up. In the various sources of info, the words "investor promises to make the payments to the seller" - do they mean verbally due to the mutual interest in keeping the financials healthy, or is this promise a written agreement? Thanks in advance.

It seems like explaining the situation to your attorney and having him/her mail the notice with clear letterhead would be well worth the ~$100.

@Ruth Ann Morris thanks.  So the main reasoning would be the reason for a Living Trust in the first place, which is for the asset to stay out of probate in case of death.  But not liability protection.  OK makes sense.   Did you just fill out a Warrenty Deed or did the purchase itself deed the property to the Trust, if I may ask.    

Hello,

  I recently finished my first deal on a buy & hold and will have it rented soon.   Separately I already have a living trust setup for general estate mgt.   A few questions I have are a) Should I deed the property to the trust and does this protect me from potential litigation b) How to do this - is it as simple as filing a document and recording it with the county and does it affect dwelling insurance c) what are the pros/cons and d) does it create any headaches when the time comes to sell the property?  thanks in advance.

Got it.  Learned a lot from this thread!   Thx.

@Chris Ambrosio and all, can any of you provide the details of or a link to a contract that would be used for Sub2? How similar/different is it to a regular purchase agreement? What clauses are included or excluded? A completed example (with no names/addresses) would be great to see. Thx.

Thanks @Curtis Bidwell you may have just changed my fundamental approach to purchasing buy & holds!

My last question then - does the bank that's giving you the main loan (in this case the 71k) have any issue that part of the down payment is being financed based off of equity, vs sitting in a bank account?   I have a relative once who almost got turned down for a loan because the downpayment was actually borrowed from a relative - thus the bank saw the purchaser as have a higher monthly liability than they would if having only the primary loan.

Thanks in advance.  This is some great info.     

Thanks @Jay Hinrichs and @Chris Ambrosio     I also found the following online-seems a good summary of risks and legality:  http://www.johntreed.com/dueonsale.html   

But I have a simple question - how does one get the payment coupons to come to a new address and isn't this something that would naturally reflect a new payer on the note? And what is the mechanism - do we just send them a letter saying to send the coupons to a new address? Seems trivial but I'm not clear on how to do this step on Sub2.

thx

Jon

@Greg Morical Great info - I hadn't seen this kind of analysis before. I'm in a (fortunate) position of having a choice to use cash or HELOC in my next purchase. You have some good points regarding HELOC. I have a couple of followup Q's:

* can you comment on closing costs - does one way or the other offer an advantage for all the costs associated with loans/titleins/closing costs etc?   Or is it pretty much a wash?  For example is there risk in having a refinance be at a higher rate that you'd get if you did traditional financing from the get-go?   

* It seems the strategy you described makes the most sense when it's a great deal - but in the case where I'd be buying a positive cash flow situation near or at market value, then the advantages become less is that correct?  (for my own understanding).  

@Curtis Bidwell I'm trying to make sure I understand the math right. If you pull from HELOC then in effect you are still using your own money (via equity tap), so wouldn't that amount also go into the basis for calculating cash on cash ROI? Please point out what I'm missing so I can calc my deals correctly. Thx!

Hi @Bill S.  Not in the last 40 years anyway.   In the 80's there was a reduction in the Rate of increase (derivative of increase if you're a calc guy) - but there still was an increase (all while rates were going up).    

Having said that - we're in a unique situation for how long the rates have been low and how low they are (i.e. the volume of homes which have been purchased at these historically low rates), so perhaps history wouldn't be an accurate guide.  I think we'll find out in the coming year.