All Forum Posts by: Ken M.

I read that every mortgage has a Due on Sale clause, which means you have to notify the lender when you sale the property and pay the entirety of the loan when you sell the property.

How do people work with the clause and make these kinds of deals?

First, let's be very clear here.

The mortgage your speaking of is a private agreement between the seller and the lender. The "due on sale" clause (DoSC) obligates the seller to notify the lender if the property is sold.

Failing to do so would place the seller in violation of this agreement, giving the lender the right to accelerate the loan.

But no laws are being broken here.

So, subto is neither legal nor illegal.

Second, it only works because most lenders are more interested in receiving payments than in invoking the DoSC clause and foreclosing on the property.

But, it can work, provided seller and buyer are both on board and the proper process is followed.

Actually "

The "due on sale" clause (DoSC) obligates the seller to notify the lender if the property is sold."

Please explain how you come to this emphatic conclusion.
The Due on Sale clause does not contain a phrase to that effect.
Case law does not support your comment.

It is more properly stated that "you can not hide the fact with intent to deceive".

In law, there is a significant difference between intentionally being deceitful (fraud) and buying properties using creative finance using escrow and properly reporting the
transaction.

The lender has a duty to track their loans and recorded documents are notice of the change in ownership.

The most serious problem is when a "kitchen table transaction" is used and not-recording the deed is used to intentionally hide the transfer.

That approach is commonly being couched in terms like, "you can save money by not going through escrow". Which I have heard a guru say he uses as a technique, no escrow, simple paperwork between buyer and seller. That is disaster waiting to be uncovered. When a guru says he does that, it's a tacit endorsement of the action. Very dangerous action. By the way, anything to do with a bank loan has a 10 year period in which to enforce legal action. You don't even have to own the property any longer and they can still charge fraud.

0 Votes

Quote from @Bianca Rodrigues:

Quote from @Ken M.:

Quote from @Bianca Rodrigues:

Quote from @Ken M.:

Quote from @Bianca Rodrigues:

Hello everyone!

I have an opportunity to purchase a mixed use property that seller is open to using partial seller finance. The property has two residential units on the second floor and first floor is a retail space. The seller has an existing mortgage on the property and would like to discuss a partial seller finance deal. I am new to creative financing and don’t exactly know the ins and outs of what would be the best way to approach this. I’ve done some research and have found that some banks will allow the seller finance portion from the seller to go towards the down payment of the loan, is that true? Looking for any input or advice on how this strategy actually works. Thank you!

.
Need more details. ;-) The following is just general information

It sounds as though the seller has an investment to sell, not his private home. So, things change a bit.
If it is his personal home, there are more restrictions.

For an investment property, if you take over his financing, read through the deed of trust (mortgage) and see how they handle transfer of ownership. There may be something called a "Due On Sale" clause.

Check and see if all tax parcels are included in one mortgage or if they have separate mortgages.

You have to have him spell out what he considers to be a "partial seller financing". He may be actually speaking about a "Wrap".

Find out if actual ownership converts to you

Make sure you have a title report

You may want to pay for an appraisal and an inspection

Make sure you use an escrow company or an attorney to do the transaction

Hi Ken!

Thanks for responding. This is an investment property of the seller, not their primary residence. There are two, one bedroom apartments on the second floor and first floor is currently being used as a convenience store. They mentioned having two mortgages on the property
worth about $400,000 in total. They want to sell the property for $699,000. As of now that is all the info I have. We meet in person next week.

It sounds like they are looking for a buyer who will pay off their existing mortgage and they will help out from a seller finance perspective on the rest of the $699k purchase price.

If they put it on the MLS< what would it sell for? Not what would they list it for, but what would it *sell* for?

Property was originally listed for $1.2mm this past year they’ve done multiple price decreases to $699k. Based on comparable listings recently sold I think closer to $650k there would be more interest.

For that transaction, I would be inclined to pay for an appraisal and inspection.

0 Votes

Quote from @Bianca Rodrigues:

Quote from @Ken M.:

Quote from @Bianca Rodrigues:

Hello everyone!

Hi Ken!

It sounds like they are looking for a buyer who will pay off their existing mortgage and they will help out from a seller finance perspective on the rest of the $699k purchase price.

If they put it on the MLS< what would it sell for? Not what would they list it for, but what would it *sell* for?

0 Votes

Quote from @Azat Suleimenov:

Hello,

I'm starting my BRRR investments in San Antonio, TX market. I'm off-state investor, located in Bay Area, CA

Looking for Real Estate Agent, contractors, lenders connections.
Ping me!

What got your knickers in a bind about San Antonio? ;-)

0 Votes

San Antonio, Texas

Quote from @Chris Allen:

Quote from @Ken M.:

Quote from @Chris Allen:

Quote from @Ken M.:

Quote from @Chris Allen:

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

2: We will deed the property back to the seller & execute a contract for deed. The terms remain the same, we still pay the monthly mortgage payment. The only difference is the seller remains on title until we have enough equity to refinance or sell.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

Never SELL using "Subject To". I can explain why, because I buy Subject To. If you want more detailed advice, I can provide it.

You BEST option is to contact a bankruptcy attorney and find out your other options. That doesn't mean you have to file bankruptcy, but you do need to know there are better solutions than Subject To when in foreclosure.

If you sign a deed in lieu, that means you will no longer own the property and will probably never be able to buy it. It is no longer yours. Period. Doesn't matter what they promise. It's a dishonest promise.

If you are in foreclosure, it sounds like you are either there or headed that way, what you are encountering is a "foreclosure scheme" they are illegal in most places and for good reason.

(I won't do them)

The buyer can be facing "equity skimming" as defined by the law:

Penalties of Equity Skimming

Equity Skimming is a type of Mortgage Fraud. The FBI’s Financial Crimes Unit investigates these matters for filing of charges on Equity Skimming violations. As a result of being federally charged with these crimes, you may face monetary fines, penalties, prison time and other consequences of Equity Skimming.

Equity Skimming and related penalties of sentencing are detailed in 12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

Equity Skimming may also result in Conspiracy charges, specifically conspiracy to commit bank fraud and false statements to influence a financial institution. Penalties of these Federal charges may include:

30 years in prison
Up to $1 million in fines

It's a Federal crime.

I'm not currently at foreclosure, but am recently out of state starting grad school, no income, and home needs repairs that I simply do not have the money to make. I can only come out of pocket to cover mortgage so long.

It depends on what your plans for the property are.

Why not sell it? Better to get what you can, than to lose it all.

Why not joint venture with someone who has money, fix & flip it

Why not rent it out for at least the monthly carrying costs.

Why not sell it on a lease option, get 10% cash up front to fund school?

It's been listed on MLS for about 3 mo almost with no traction. The some of the repairs need to be completed before renting out. We recently updated listing to sell as an owner finance (wrap). I just spoke to my realtor and let them know I'm not going to do the Sub-2 right now.

The other issue is that it does not have much equity at all. It was a rental for us about 1-2 yrs after a major remodel. So the initial appraisal for the refinance was good at the time, but now the As-Is is not gaining traction with buyers. I already have money left in the property and hesitant on sinking anymore in.

.
If there isn't much equity, and there is so much to fix to make it livable, why not do a "deed in lieu" with your lender and move on with life? "Fall in love with people, not with houses".

Did your agent do a "cash out analysis" to show how much winds up in your pocket after the sale expenses? They should, so you can see what you are dealing with.

0 Votes

Austin, Texas

Quote from @Dan H.:

Quote from @James Wise:

Quote from @Dan H.:

Quote from @James Wise:

Quote from @Dan H.:

Quote from @Jonathan Small:

You've raised some valid concerns about California, and it's true that the state faces significant challenges. However, dismissing it entirely based on these issues overlooks several factors that continue to attract people and investment:

Diverse Economy: California boasts a massive and diverse economy, far beyond just Hollywood. It's a global leader in technology (Silicon Valley), agriculture (Central Valley), international trade (ports of Los Angeles and Long Beach), and tourism. This economic strength creates job opportunities and attracts talent from around the world.
Innovation and Entrepreneurship: California has a deeply ingrained culture of innovation and entrepreneurship. It's a hub for startups, venture capital, and cutting-edge research. This attracts ambitious individuals seeking to build the next big thing.
World-Class Universities: California is home to some of the world's most prestigious universities, including Stanford, UC Berkeley, UCLA, and Caltech. These institutions attract top students and faculty, contributing to the state's intellectual capital and driving innovation.
Natural Beauty and Diversity: While you mentioned the weather (which is undeniably a major draw for many), California's natural beauty extends far beyond sunny beaches. It encompasses diverse landscapes, including mountains (Sierra Nevada), forests (Redwoods), deserts (Death Valley), and national parks (Yosemite, Sequoia). This offers a wide range of outdoor activities and recreational opportunities.
Cultural Hubs: Cities like Los Angeles and San Francisco are major cultural centers, offering world-class museums, theaters, music venues, and diverse culinary scenes. They attract artists, creatives, and people who appreciate a vibrant urban lifestyle.
Real Estate Appreciation (Historically): @Dan H. points this out with his bathroom addition. While recent years have presented challenges, California real estate has historically seen significant appreciation, particularly in desirable coastal areas. This has made it an attractive investment for some, though high prices and increasing interest rates are currently impacting affordability.

Addressing your specific points:

High Taxes: Yes, California has high taxes, particularly income tax. However, many high-income earners are willing to pay these taxes for the perceived benefits of living and working in California, such as access to opportunities, infrastructure, and services.
Crime and Homelessness: These are serious issues in some parts of California, particularly in major cities. However, it's important to avoid generalizations. Crime rates vary significantly by neighborhood and city. While the homelessness crisis is a complex problem, it's not unique to California and is being addressed through various initiatives.

In summary: While California has its problems, it's not a simple case of "everything else sucks." The state's economic dynamism, natural beauty, cultural attractions, and educational institutions continue to draw people and investment. Whether these factors outweigh the challenges is a personal decision.

San diego, los angeles, and san Francisco violent crime rate is low compared to most large cities outside california. The 3 of them are below Cincinnati, cleveland, and toledo.

The lowest city on the list on wikipedia for violent crime is irvine, CA

https://en.m.wikipedia.org/wiki/List_of_United_States_cities...

Any violent crime is too high but i travel a bit. I feel far safer in the roughest parts of San Diego than i do in many large cities outside CA.

People seldom look at actual crime numbers. What they see is what their media presents to them. A crime in a low crime area may be media worthy but the same crime in a high crime area may be just another day.

in my neighborhood (poway), kids playing doorbell ditch or riding 3 on an electric bike warrants posting on social media and dozens of comments (no exaggeration). Must be nice that those “crimes” deserve so much attention.

It is my belief that most RE investors are best served initially investing near their home. After they have some experience they can decide if other markets are likely to suit them better. I believe this is true for high price san Francisco and lower priced detroit and most markets in between.

Best wishes

San Diego, Los Angeles, and San Francisco having a lower violent crime rate than Cincinnati, Cleveland, and Toledo is not an accomplishment by any means. You are comparing 3 cities where you pay one of the highest premiums in the USA to live to 3 of the cheapest cities in the USA. This would be like me telling you my Escalade drives better than your KIA. Duhhhh, of course it does.

The post i was replying to implied a serious crime rate in CA cities. That is not true.

i also do not associate crime rate with cost of living and find it interesting that you do. If you look at the list, there is not a strong correlation between price and violent crime rate but more important, the large california cities are lower than most large cities in other states. The stats seem to indicate there is not a violent crime issue in large CA cities that some people believe exists. They have that belief in large part due to media sensationalizing certain crimes. The violent crime stats tell a different story.

best wishes

What kind of person doesn't associate crime rate with cost of living? Of course one would and should assume that the cost of a property in a "safe neighborhood" would be more than the cost of a similar property in a "dangerous neighborhood." That's common sense.

I agree on a neighborhood basis. In general higher cost neighborhoods are safer than lower cost neighborhoods. Howevr, look at the stats on a city basis. There are LCOL cities with low crime rates and HCOL cities with high crime rates. There is not a tight coupling between price and violent crime rates. for example denton texas has one of the lowest violent crime rates. I highly suspect few people consider it a HCOL city. As indicated the correlation of LCOL cities having high crime rates and HCOL cities having low crime rates appears to not be strong.

Ca large cities have lower violent crime rates than many cities in other states that are a similar size.

California has the highest rate of investor homes in the nation because of the returns that can be achieved. There is nothing that trumps the return on why it has so many investor owned homes. Great appreciation, great cash flow on long holds, great value add opportunities, good tenants in most areas (my city delinquency and eviction rates are near the lowest in the country). There are lots of ways to make money in CA real estate for those that know what they are doing.

However, i recommend newbies start in or close to their home market. They need to identify the possibilities in their market. After that if they believe CA is the right market for them, they can join the plethora of investors that invest from all over the world in CA RE.

good luck

Hmm, me thinks a strong case can be made for "confirmation bias" here. "Since I invest here, there must not be any problems". ;-)

0 Votes

Los Angeles County, California

Quote from @Bruce Woodruff:

Whether or not this specific fire was entirely due to forest mgmt, Cali has a problem with this. They fight Federal attempts to remove old wood by suing. I know Fed people that have fought the state over this. It is fairly well known...

Isn't this fire partially because the person in charge of the water for the fire hydrants forgot to turn the water on?

1 Vote

Los Angeles County, California

Quote from @Jaron Jackson:

I recently closed on a duplex with an inherited tenant. The date of closing was Dec 20. At the closing table I received the rest of December’s rent from the previous owner. Later I find out from the tenant that the tenant pays their rent early and has already paid January’s rent. Coincidentally, Januarys rent was paid on Dec 20 according to the tenant. The tenant has proof that the rent payment went through successfully and was processed. Now me, my agent, and the sellers agent have been trying to get in contact with the previous owner to receive these funds. The seller hasn’t responded to anyone after the deal close. Any advice on what I should do to retrieve January’s rent?

Go by what was written into the agreement. If necessary, file a small claims, make sure you show up to court because he won't, get your judgment and file it at the county.

0 Votes

Atlanta, Georgia

Quote from @Donald DiBuono:

This is all very very helpful! One last question - is your assistant actually hand writing the envelop? Or do you have a computer print on the envelope?

Computer used for printing. The letters need to folded, inserted into the envelope, sealed and stamped. At one point I was doing enough volume to have Staples print and fold the letter. They can't print the envelopes cheaply enough to make it worth while, so I would still run the envelope through the printer. If you use labels, it cuts down on the effectiveness a little but clear labels works better. That cuts down some assembly time. Responses are a month faster than a company doing it for you.

0 Votes

Albany, New York

Quote from @Donald DiBuono:

Quote from @Ken M.:

Quote from @Donald DiBuono:

Hey!

Looking to bolster my off market lead flow. Does anyone have a good effective 3rd party mailing company to send mailers direct to seller?

Thanks!

There are several companies that send letters and some are active on Bigger Pockets.
However, I would caution you to set expectations appropriately.
1. When you go with a company, it may be a month before the mailing goes out since they stage and batch the mailings in order to use bulk mailing at the post office.
2. Your list is more important than you realize
3. Trial and error help you to determine your list.
4. I believe that you don't get returns (failed to deliver) with bulk mailers so you don't know which addresses are bad.

That's the simple stuff.

My advice is to do various mailings that you or some prepares locally, that go out immediately, using 1st class postage. You can test your mailer, you can test your list, you can test your message. And you get feedback at a level high enough to determine how to proceed.

I'd send out 500 at a time, using a different mailer/method weekly. It can be personally designed post cards or it can be letters.

The mailers I receive for my properties are not of a high enough quality, to make me believe the sender understands what gets a recipient to even open or read the mailer, let alone respond.

Thanks Ken, this is all very valuable information. Since I am super new to this, I do have a few questions:

By testing the list, do you mean what data am I pulling (absentee owner, tired landlord, etc)

Testing my mailer, do you mean trying different messaging? If so, is the only feedback i will receive when someone is interested in chatting further?

What determines the method? Is that just the type of messaging?

Am I hand writing all of the envelopes?

Appreciate in advance!

Here is my experience, I once sent out 5,000 beautifully designed, professionally printed post cards and got zero calls. Cost $5,000

I sent out 500 post cards on several occasions that I designed and bought two houses. Cost $500 per mailing and my time

I paid to have 10,000 post card mailers sent out by a company, took a month for them to go out after they designed and submitted the order - 5 unproductive calls - Cost (Too embarrassing to mention) Didn't receive feedback which address were no good

I paid to have advertising inserts I designed into the weekly coupon mailer. I can't remember the cost, not too bad, but no phone calls

I sent out 1,000 mailers (letters) I designed in envelopes a week for a couple of years and made a ton of money buying properties using "creative finance" some call subto. To me, it's "creative finance". Cost was about a dollar a mailer and my assistant's time, including postage. Very, very successful.

I sent out beige "invitation" envelopes and "hand written" letters (used a computer with a "hand written font" for months - about 200 a week - lots of calls - bought some properties, over all successful but time consuming

This is over the years, so messages changed with the real estate climate and list.
List, message, mailing piece. If someone is the right one, they will call even if it's a bad mailer.

More effective to door knock in some situations.

0 Votes

Albany, New York

All Forum Posts by: Ken M.

Ken M. has started 55 posts and replied 739 times.

Post: Is Subto legal?

Post: Partial Seller Financing Question

Post: Partial Seller Financing Question

Post: BRRR --San Antonio, TX-- investor

Post: Selling Home on Sub-To

Penalties of Equity Skimming

Post: Why do people Buy Property in California

Post: Why do people Buy Property in California

Post: How to get rent payment from previous owner?

Post: Best Mailer Companies

Post: Best Mailer Companies