All Forum Posts by: Kevin Sobilo

@Account Closed, rental ordinances like that are common where I am in northeast Pennsylvania BUT the fees are LOWER.

In my area, we might get hit with a $25-50 per year registration fee for each unit and another $40-60 inspection fee during every turnover.

The fees you describe sound not only high, BUT also potentially ILLEGAL! Its very common for municipalities to do illegal things for as long as they can get away with it. In most states, when a municipality charges a fee it can only be used to cover the work the fee is paying for.

A town near me got caught doing this when they were charging $150 for rental inspections years ago when the average fees were $35-50. They pushed the wrong landlord who sued them finding out that they were collecting 3x the money in fees as the budget for the whole department which means the fee was actually an illegal tax. Its illegal because the state didn't give municipalities the authority to charge that type of tax.

So, I would look at the fees of other municipalities. Some will probably be lower and I would perhaps talk with other investors in that area about pushing back on these municipalities with high fees if they are illegal in your state. 

@Chabelis Alegria, its not personal its investing. There will be MANY times where things do not work out in your favor and most of the time things don't work simply or smoothly BUT over the long haul its worthwhile. As you get more experience things also go better more often.

That said, a clog for wipes is one thing and not a huge deal to rectify. So, lets focus on the 2 remaining issues:

1. Cracked sewer pipe under the basement? How do you know its cracked? Did someone put a camera down it to see exactly what's going on? Did they use a locator to determine that the crack is under the basement?

Did they mention the possibility of sleeving the pipe? That is what I would ask about. They use a sock to inflate and push a resin into the pipe and form a new inner lining to the pipe. All done without digging things up.

2. Both panels are "surcharged" and need replacing? What does that even mean? A surcharge is an additional billed expense so I don't think that's the right word and I cannot guess what issue you're talking about.

I'm even having trouble thinking of a reason why your panels need to be replaced. The common reasons I could think of are:

- Too small of a service. For example upgrading from an old 60 amp service to a 200 amp

- A Federal Pacific panel which has a stigma associated with them about being unsafe

- An old panel from an off brand that is difficult to find replacement breakers for

- A VERY old panel that uses fuses instead of breakers

- A panel in poor condition such as one in a wet basement that has rusted badly. 

 Thank you for admitting you are wrong. They said a sub-2 contract the way they didn't was a problem because of how they did it.

If you understood it you would realize they could have done it differently and handled that issue. 

You seem to be trying to slip past why these folks got in trouble. 

The 2 areas cited were lying to cause a fraud which isn't necessary for sub-2 or any legit deal. 

Also the 1 sides void contract which could also be handled differently.  

Wholesaling could have similar legal issues if not done well. This just happens to be subject-2 deals. They didnt get in trouble specifically because they were subject-2 deals.

Maybe read and understand what you posted. 

Nothing there said subject-2 deals were illegal only that they were abused to take advantage of people and if not done correctly could result in a void contract. 

Same things would be true with other approached like wholesaling.

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Ken M.:

Quote from @Kevin Sobilo:

Quote from @Jay Hinrichs:

Quote from @Tom Gimer:

Quote from @Jay Hinrichs:

Quote from @Eyal Goren:

Quote from @Mitch Messer:

Quote from @Eyal Goren:

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.

Thanks for the clarification. What happens if the lender does accelerate the loan? I guess the seller would like to address that in the agreement. 

If you dont pay the loan off it goes to foreclosure and the original owner gets their fico CRUSHED.  its highly risky for most mom and pops to sell on sub to.. and its simply not a way for those without substantial wherewithal to buy property and keep the seller safe.. Lots of absolute nightmares come out of sub to when folks get into title but dont have the money to pay the loan off or the ability to refi.

Short term, leaving financing in place during rehab prior to resale — great strategy with limited risk to either party. 

Long term hold, with buyer planning on carrying existing financing to term without the ability to quickly cure default — terrible strategy with huge risk for both parties. 

Exactly Tom all of my sub to over the years have been deals were we got the assets for far below market did rehab and resold generally within 9 to 12 months we never bought them to keep as rentals. Its a very poor situation for the original owner to be on the mortgage for years and years without the benefits of ownership and the control.

Why do you say its bad for the original owner long term? I would think in most situations the original owner is in financial trouble, probably delinquent on their mortgage and facing foreclosure. So, selling sub-to, the mortgage is brought current and timely payments are made by the new owner helping the original owner's credit CONSIDERABLY!

Also, I believe I saw somewhere that the mortgage won't count against the original owners DTI after a period of time if they show someone else is paying the mortgage. So, they could potentially buy another house later on.

I do agree the lack of control is a potential issue.

.
People recover over time and they want their name off of the loan.

They have no way to force removal, other than to pay off the loan on a home they no longer own. 

So they contact the lender and tell the lender they no longer own the property and want to be removed. The lender at that point can exercise the Due On Sale and it becomes a problem for the subto buyer, who now has to find new financing or lose the house to foreclosure. This destroys the credit of the original owner who can then sue the subto buyer.

Another issue is if the subto seller claims they were taken advantage of by the subto buyer at a vulnerable time (pre-foreclosure) and an attorney or regulator raises the question of equity skimming. Bank related issues can be prosecuted for 10 years. Serious punishments.

With all of that, Subject To is legal. Just make sure you do it the legal way. Driving a car is legal, as long as you follow the rules. It's the same idea.

People can do all sorts of dumb things. If the loan is being paid the seller/previous owner has no reason to want off of the loan. They can qualify for a new mortgage and show they are not the ones paying on the old loan so that the payment doesn't affect their DTI.

I don't think the typical sub-to deal would lead to equity skimming because they are likely close to foreclosure and there isn't enough time to rent the unit back out and make money allowing the unit to go to foreclosure.

If the new owner pays on the loan its not "equity skimming" from what I understand of it.

You are correct there certainly are ways for things to be done badly or illegally, but these are BAD MESSY situations before a sub-to deal would even be considered. Its like a short-sale, its better than a foreclosure but has downsides as well. 

I believe you are not aware that the definition of "equity skimming" has been expanded since the great Federal Reserve debacle of 2008.

If you believe that is true, please cite a source. You simply saying something is so, adds nothing to a discussion. All it ends up being is one person saying "Is not!" and the other one saying "Is too!" over and over.

.

Here ya go - release was March 14, 2025 Since there are 81 pages, I'll just point you to a pertinent one, you can download the entire 81 pages below

https://www.azag.gov/press-release/attorney-general-mayes-su... Release

https://www.azag.gov/sites/default/files/2025-03/CV2025-0084... Lawsuit

They give the identities of two partners and call the third - Partner "C" plus dozens of "not yet named"

 Doesn't sound specifically related to subject-2. The portion that created the fraud was likely misrepresenting who they were and what they were trying to do. 

When you lie to get something of value that is potentiallt fraud. 

The article cited no issue with taking control of the loan being illegal only lying to the seller to get something of value from them.

@Ray Young, a couple things to consider:

1. Have you checked the zoning to see if you are allowed to covert this single family into a duplex. If the zoning is something like R-1 residential you may not be allowed to do this at all.

2. Even if zoning allows for this there may be other zoning requirements that have to be met. For example, its common to have larger minimum lot sizes for properties with more units on them. Another example might be a requirement to have a certain amount of off street parking for each unit. A municipality in my market would require you to have 1.5 parking spaces per unit when adding units. So, that would be 3 spaces for your plan.

3. Did you check that the finished basement would meed the occupancy requirements to be a separate apartment? The common issue that comes to mind is egress. Often times a basement apartment needs to dig out along the foundation and add an enlarged egress window so that occupants to get out in case of an emergency like a fire. 

4. With regard to utilities. With water it likely would not make sense to add a 2nd water line as they tends to be pricey compared to the size of the bill. So, I would include that in the rent, BUT if a long term tenant adds occupants such as a bf/gf moving in, I would add an amount to the rent to compensate for the added water cost maybe $25.

With electric, I would also include it simply until you can separate the electric and install a separate service for the basement. However, you may find this pricey since the basement is already finished. It will depend on how separate the circuits are between the basement and the rest of the house.

@Hector Escobar, it sounds like you didn't talk to your broker about doing wholesaling. There is your mistake right there.

First off, a broker may be want to be compensated if you are using a lead the brokerage generated.

Second, the brokerage may require you to do certain work such as generate a file and document the fact that you disclosed your license status to this lead.

The brokerage has liability with you working at wholesaling because you could easily through poor communication or misunderstanding have the seller believe you are "representing" them as a client rather than as a wholesaler. They may not understand the difference. That could create potential liability for the brokerage.

Because of this added potential liability, the brokerage may not permit you to wholesale and also remain as an agent of theirs. They stand to make no financial gain while taking on additional potential liability.

Why not work these deals as "net listings" where the seller agrees to the minimum amount they want to receive and the commission is anything you get for them above that amount. That commission you can split with your broker. It has basically the same net effect as a wholesale deal BUT where you give the seller representation, the broker is compensated, and you are also protected more with your errors & omissions insurance. 

@Nikol Catino, It isn't only about appearance with paint. Its also about function.

For most ceilings, I use flat white. Ceilings are never touched and a shiny appearance with light reflecting off of them is distracting.

For woodwork, they DO get touched, dirty, scuffed. So, I like to use a semigloss paint on woodwork, doors etc because its durable and washable.

For kitchen and bathrooms, I also use semigloss because those rooms are more likely to need walls wiped down. For example, grease atomizes in kitchens and settles on surfaces. So, being able to wash walls is useful.

Inside closets without lights, I use semi-gloss white because it reflects light and is durable against scuffs.

For the rest of the walls, I either use satin or possibly egg shell whatever I think looks better.

@Brandon Campbell, yes I'm in northeast Pennsylvania. In my state squatters similarly gain rights as you stated, BUT it isn't that unreasonable to deal with them. I'll share another story I had with an actual squatter:

Several years ago I bought a house through the tail end of the tax sale process for $500 (yes, really). It is a raised ranch and it had a good looking roof. I bought it specifically to use the garage as storage. I didn't even care the condition of the house itself.

The process to purchase through this last step of the tax sale process (repository list) took several months to complete. During that time I would occasionally drive by the property but it always appeared to be vacant.

When I finally got the deed, I went to break into it and secure it for myself. I went up to the house's back door and I found there was an easily accessible window I was able to pry open without causing damage. I poked my head in and found myself staring at the back of a small flat screen TV in a bedroom and when I looked further into the house, it looked "clean", in fact TOO CLEAN. It looked occupied!!!

So, I backed myself out of there without actually entering the house. I went to the nearest neighbor and introduced myself and inquired about my house. I was told that yes someone lives there and tells people he owns it even though the neighbor knew that wasn't true. 

So, I went home and regrouped. I consulted with my real estate attorney and was advised of a strategy to handle ousting the squatter. The approach they recommended was to make that squatter a defacto tenant and then to evict them for nonpayment. I guess this eliminates any messy arguments anyone could make during an ejectment (evicting a squatter) proceeding and makes the process more cookie cutter to handle. 

Anyways, I stopped by the property a few times until I could catch the squatter at home. I spoke to them and explained the situation. They were agreeable about leaving, but to protect my interest as the lawyer suggested I gave the squatter a letter notifying them that I had purchased the property as of a certain date and that market rent of $XXX was due. I told them if they left I would not take any action about the rent, but if they didn't I would use that as cause to evict. 

The squatter was pretty reasonable about leaving. It took them a few weeks longer than they originally agreed to, but I was flexible because they were making an honest effort. They offered to give me a key prior to them leaving but I refused because I didn't want there to be any misunderstandings if they thought something went missing. I told them this is YOUR place until you are out and then it becomes MY place clean and simple. 

Eventually, he did leave. He had been living there several years with no water, a small generator he ran under the back porch with a long extension cord for a little electricity, and only a propane heater in the living room like a camp fire for heat.

He endured those conditions but STRANGELY who shows up to help him move?!? His WIFE and adult son! How terrible must your home life be to squat in those conditions rather than live with your wife. So, sadly I think I ruined his life and he was forced to move back in with his wife! lol

I also learned the back story about how he came to squat there and how the house ended up as a tax sale property. The squatter was originally a TENANT! The owner lived next door in a large building with an old storefront space and large apartment. He committed suicide (shot himself in the head) leaving behind 197 cats in the building next door. 

The owners wife I found out ended up in a mental institution and apparently nobody took control of the estate so the properties went to tax sale. The tenant never moved out and just became a squatter for several years until I purchased the property. 

@Brandon Campbell, great story!

I've had a few stories with trespassers and squatters, but I'll share this one.

Several years ago I was buying a foreclosed house through an auction website. After getting the property under contract, I went to the property a few times to develop my scope of work for the rehab. About a week before closing, I went to the property and it had clearly been broken into. I wasn't sure if anyone was in the house so I called the police to check the house and to document everything in a report. Since I didn't own the house yet and didn't know if there was any damage that might affect the sale that seemed like the best course of action.

Nobody was present and the police left. As I went through the house and investigated further, I found that someone had hauled IN a used gas boiler and had begun INSTALLING it to replace the old boiler that apparently didn't work. I also found that someone had popped the electric meter and removed the plastic plug so that they could steal electricity.

It would have been so much easier to just heat the house with electric heaters or install some electric baseboard than to install a gas boiler. I figure they were setting the house up to be a marijuana grow house and needed all the electricity for lights and ventilation. 

Later on after speaking with some neighbors, I found out that one of them saw the guys who broke in and had called the police. Apparently the police had interacted with the guys as they were breaking in and hauling that boiler inside! The guys told the police "If we were breaking in, would we be hauling this gas boiled INTO the house?!?" The police bought the story and left them to continue breaking into the house!

After that, I had no further problems. I wanted a brand new boiler in that house, so I traded the used boiler the trespassers had left to the plumber towards some of the work. He wanted that boiler to install at a relatives house. So, I was able to seamlessly get some value for it. So, in the end I actually gained something of value from this minor ordeal!