"Finally, there's a lot of irrational fear out there about the due on
sale clause and the lender calling the note. I've never seen this
happen. Banks are in the business of collecting loan payments, not
calling mortgages. If you're paying on time they don't care if Santa
Claus owns the house."
Certainly true in the past, but I'm not so sure going forward. Banks really didn't have an incentive in the past as rates were generally going down. A subject too loan generally had a higher interest rate than the prevailing rate (not all, but that was the general direction of the market).
Now banks have plenty of incentive to seek out and call these loans due. There are a lot of 30 year loans out there at 2-4% and banks would absolutely love to call those loans due and reissue at 7-8% (or simply own treasuries at 5%).
The bankers I know love collecting interest payments, regardless of the rate, not calling performing notes.
Here's why...
Think about the amount of manpower it would take for a lender to cross-reference tax records against their entire loan portfolio to verify the original borrower is no longer on title.
It would be a monumental undertaking. Especially when you consider how many people transfer title from their names to their LLCs, trusts, etc. The only way a lender can really know for sure if the original borrower no longer has an equitable interest in the property is to pull a title report, which costs time and money.
And for what? To call what is likely a small percentage of performing notes?
That, and there is no guarantee if the lender does call the note that the current owner is getting a new loan at the higher rate with them, so why go through all of this?
The only time I've heard of notes getting called is when the borrower tips off the bank that they sold the house and are no longer on title.
I suppose the landscape could change as you have suggested, but seems unlikely to me. If I'm wrong I'll just get a new loan if the note gets called.
Perhaps. I've never had it happen before and I've been doing sub-to deals since 2003. I did about a dozen last year, and a handful so far in 2024.
As investors we take risks, and when you consider them all, having a note called is on the low-end of the scale. If you're buying right then getting the loan refinanced shouldn't be an issue.
Servicers have data tools that run all the accounts and flag ones where insurance or title is not a match. This takes seconds and costs pennies to run the reports for hundreds of thousands of loans. This is NOT where a paper file is in a drawer and manually pulled. Anomalies are put on watch lists and reviewed for valuation.
Have you ever made an insurance claim? Name the company who cut you a check in your name?
I leave the original owner's insurance in place (it's escrowed with the monthly payment anyway) and then pay for a separate policy in my LLC's name. Although I've been fortunate that I've never had to file a claim.
"Finally, there's a lot of irrational fear out there about the due on
sale clause and the lender calling the note. I've never seen this
happen. Banks are in the business of collecting loan payments, not
calling mortgages. If you're paying on time they don't care if Santa
Claus owns the house."
Certainly true in the past, but I'm not so sure going forward. Banks really didn't have an incentive in the past as rates were generally going down. A subject too loan generally had a higher interest rate than the prevailing rate (not all, but that was the general direction of the market).
Now banks have plenty of incentive to seek out and call these loans due. There are a lot of 30 year loans out there at 2-4% and banks would absolutely love to call those loans due and reissue at 7-8% (or simply own treasuries at 5%).
The bankers I know love collecting interest payments, regardless of the rate, not calling performing notes.
Here's why...
Think about the amount of manpower it would take for a lender to cross-reference tax records against their entire loan portfolio to verify the original borrower is no longer on title.
It would be a monumental undertaking. Especially when you consider how many people transfer title from their names to their LLCs, trusts, etc. The only way a lender can really know for sure if the original borrower no longer has an equitable interest in the property is to pull a title report, which costs time and money.
And for what? To call what is likely a small percentage of performing notes?
That, and there is no guarantee if the lender does call the note that the current owner is getting a new loan at the higher rate with them, so why go through all of this?
The only time I've heard of notes getting called is when the borrower tips off the bank that they sold the house and are no longer on title.
I suppose the landscape could change as you have suggested, but seems unlikely to me. If I'm wrong I'll just get a new loan if the note gets called.
I understand it varies by jurisdiction of course, but.. Since this post got bumped, I'd love to hear any tips or tricks anyone would care to share about your last minute "game plan" if you happen to get a strong lead to reach back out/etc, with under 24-48 hours before auction.
(other than having cash/equivalent, preliminary title report, and the appropriate deed ready to go 'on hand')
The MOST difficult part of this will be getting the lender to provide you with the reinstatement figure to bring the loan current (I do this and take title sub-to because it's actually easier to get the lender to provide a reinstatement than a full payoff).
To do this, contact the lender WITH the seller on the phone. Tell them that you're helping out the homeowner and have the funds to bring the loan current. Don't give up. Call back as many times as it takes until you get someone on the line that can do this for you. Sometimes they'll provide the figure and you can wire it in. I've brought cashier's checks to the auctioneer at the courthouse steps to stop the sale before. Other times the lender gave us a postponement (anywhere from 7-14 days) to get the funds sent in.
This is like pulling off a touchdown drive with a minute on the clock and no timeouts. It's nerve-racking, but a rush if you can get it done and help the homeowner avoid losing their home at auction.
I'm suspicious of your recollection of how it works. You brought cashiers checks, to the foreclosure sale, with the intent to stop the sale? I can tell you that isn't how California foreclosure sales work. I can tell you if you are not an attorney you would be running afoul of California foreclosure consultant registration laws if you applied your scenario to a borrower in foreclosure. I can tell you that the borrower has no legal right to reinstate the loan at the courthouse steps. I can tell you a reinstatement and a payoff quote come from the same department in a bank and, follow the same parameters per federal rule.
Maybe it's pulling off a touch down with 1 minute to go but sounds like maybe scoring on the wrong end of the field.
Maybe you meant something different or maybe this is a tactic for a different state or, maybe I just misunderstood what you were trying to say.
I don't do any investing in California. Far too risky there for pre-foreclosures because of the registration law you mentioned.
Most of my pre-foreclosure business is in Arizona and Wisconsin, but I've done deals in Illinois, Texas and New Hampshire as well.
I advise anyone looking to do pre-foreclosures to stay away from California, Maryland, Washington and Oregon. Maryland, for example, has a law prohibiting investors from contacting homeowners in foreclosure once they have 30 days or less left until the auction date.
I've closed a handful of pre-foreclosure deals where the lender advised me to bring the reinstatement in the form of a cashier's check to the courthouse steps and hand it to the auctioneer. The auctioneer called the trustee to verify and then cancelled the sale. Doesn't happen often, but it does happen.
Contact title companies in your area. Tell them you're a cash buyer looking to buy properties and that you want to connect with wholesalers. The title company rep may not give you names/numbers, but they'll pass your contact info on to their top wholesaler clients. And I promise they will call you. I've found many excellent wholesalers I do business this way.
Another approach...just Google "sell my house" in your area and there will be at least 3-4 paid ads, and dozens more unpaid that will pop up. These are wholesalers looking for deals. Call them up and tell them to add you to their list.
Finally, foreclosures, specifically pre-foreclosures are 100% worth it. The last 2 deals I closed were pre-foreclosures (Arizona). I paid the seller cash at closing and took title sub-to.
Good luck Guka!
If your up for the challenge of doing a flip, what would be your recommendation for a beginner to find the funding to purchase the property with enough funds to finance the flip?
Find a local hard money lender, you'll get the quickest underwriting approval and best terms. Usually they'll want around 20-25% down (if you're new). Some lenders will finance up to 80-90% of your rehab too.
There is A LOT of money out there to lend, so take your time and don't pay anyone up front for processing, research or due diligence. The legit lenders will look at the property, equity, rehab needed and approve off of that without charging you any BS fees.
@John Slater sorry a bank owned property. Itʻs been sitting in foreclosure for a few years and I wanted to ask some questions about it and maybe put in an offer.
If the bank owns the house it's not in foreclosure anymore. It's an REO (real-estate owned). And if the lender foreclosed on the property a few years ago, but still hasn't tried to sell it, then it could be because there's an issue with title, or perhaps there's a legal battle taking place with the previous owner. The bottom line is you can't make a seller sell, even when it's a bank. Most banks want to dispose of non-performing assets quickly, and will do so by selling at a public online auction like Auction.com, or list the property with a local Realtor on the MLS.
Even if you can work your way up to the bank's decision-maker on this property, it's highly unlikely they will sell directly to you. They will want to expose the property to the entire market to get a highest and best price.
Rather than doing this I would focus your efforts on finding pre-foreclosure deals. This is a much more effective approach to finding below-market deals, especially as a new investor.
Good luck Shenell!
Good info. How does a new real estate investor find a pre-foreclosure deal? I am interested in Dallas/Fort Worth area.
You search for notice of trustee's sales at the Dallas County courthouse. They publish these notices online. Here's the link: https://www.dallascounty.org/g...
Newbee here!
Would you mind spreading some light in the differences of obtaining properties of preforeclosure and trustee sales?
Having gone down to the recorders office to look at the NOD list that's really all I understand at all moment.
To be real, I don't quite know what the NOD list is other than a list of the pre foreclosure of a home.
Marty you've mentioned many times over reading through your posts that you tend to contact an owner within 30days of an auction on the home and I'm not sure how to find this information from my NOD list I've acquired. Calling the attorney involved sure, but that information isn't listed on the paperwork I am provided.
New to this space and I'm eager to learn. Still unaware of the correct questions I should be asking also.
Thank you for your time and for being a BP member, I'm really enjoying going through the forms here.
Go here and search "foreclosures" and then look for the NOTICE OF TRUSTEE'S SALE:
https://www.utahlegals.com/(S(qz3suyqbucrgtawc2hx2bhv4))/def...
Hi all, I have been watching a lot of Pace Morby's videos these days. He is an advocate of subject-to financing to purchase properties.
In all the videos I have watched, he talked about all the up-side of subject-to financing. but the downside is rarely discussed. I thought I could use BP's collective brain power to help educate myself further on this subject. For all questions below, it is assumed I am the buyer, who wants to assume the seller's loan and take the title of their properties.
The pinkest elephant in the room is what happens when I as an investor default on the loan payment. I understand the ownership goes back to the original seller. However, if this is during an economic downturn when default would likely happen, there might be no equity in the house for the original seller, and I can't see how a seller would be comfortable being ultimately responsible for a mortgage that might last 20-30 years. It felt like a glorified rent-to-own agreement.
Any thought would be appreciated.
As others have pointed out Patrick the original seller does not get the house back if the buyer defaults. The investor has equitable title to the property. If the bank foreclosures the investor receives any surplus funds and the original seller gets nothing (well, they do get a foreclosure on their credit report).
There are really only two types of sellers that are agreeable to subject-to deals:
1. Sellers with no equity
2. Sellers in foreclosure
I've done hundreds of subject-to deals with both.
When the housing market crashed in 2008 I defaulted on numerous subject-to deals. Values dropped by 55% in my area (Phoenix) and there was no way I could sell these properties. Fortunately, I escaped any legal trouble because I worked out arrangements with the original sellers and gave them their houses back. Others didn't want them back and were okay with a foreclosure. After all, they were headed that direction before I stepped in to buy their house in the first place.
In 2023 and beyond, I think acquiring houses subject-to is a smart strategy, especially if you plan to fix and flip because you don't need to keep the mortgage in the original seller's name for very long.
As for acquiring rentals, subject-to is also preferable as long as you can count on at least $300 + in cash flow (and have reserves for 6 months). But I would advise you have a plan in place to pay off the existing mortgage in 2-3 years because eventually the original seller will become unhappy with having a loan in their name and no house to show for it.
Finally, there's a lot of irrational fear out there about the due on sale clause and the lender calling the note. I've never seen this happen. Banks are in the business of collecting loan payments, not calling mortgages. If you're paying on time they don't care if Santa Claus owns the house.
Good luck Patrick!
Marty,
In your experience of buying subject to, what have been some of the ways you've overcome the owners objection to allowing the mortgage to still be in their name and get the subject-to in place?
As an individual not comfortable with other people paying my bills I struggle to be an individual who might allow another person to take over payments and have the unknown idea of an unforseen even happening and my personal credit becoming ruined.
Sellers in foreclosure typically have NO issue with me taking over their loan payments. After all, they weren't making them, that's how they go into the situation they're in now.
All they care about is 1) how much cash will I give them at closing 2) how much time do they get to move out 3) how much cash will they get when they move out.
After I bring their loan current and make 2-3 payments their credit score increases, anywhere from 60-100 points. If I do get any objections I tell them this, it's a huge benefit of going the sub-to route.
My immediate thought was 'finding deals; no argument' but I think the real answer is 'it depends.'
Good deals will find cash, but good cash will find deals.
I think the most valuable skill is networking. Regardless if you have skills in finding deals or have access to capital, without a good network, you won't close the deal.
I agree you need a good network in real estate, but my issue with this belief is that too many aspiring investors get caught up in the networking process and spend little to no time developing actual real estate skills (marketing, sales, negotiation, analysis). I call it "getting ready to get ready". They attend networking events, build websites, print business cards and worry about stuff like LLC structure and taxes instead of learning how to become a deal maker.
As a newbee investor my question then becomes how to find and analyze deals.
I am out of Utah and Just started listening to the bigger pockets podcast today. After finishing the first episode I jumped on here and decided to find and read your posts.
Utah is expensive, I've attended a couple of networking events and attempted to ask questions on Facebook forms, people from a popular group called Renatus continue reaching out to me wanting me to pay for a $27k learning program.
I read read Rich Dad Poor Dad and Cashflow Quadrant so far.
I am puzzled at how people are finding the deals to begin with and discouraged already that I don't know how to build the skills and where to start to get into this network of investing.
Any light that can be shed and tips or guidance would be much appreciated.
As a beginner, the only value I would be able to provide to anyone is finding deals, the notice of default list here in my county on a monthly basis is the only thing I've attempted and my yellow letters have never gotten any response.
I am willing to help provide value however I can as a beginner.
I understand it varies by jurisdiction of course, but.. Since this post got bumped, I'd love to hear any tips or tricks anyone would care to share about your last minute "game plan" if you happen to get a strong lead to reach back out/etc, with under 24-48 hours before auction.
(other than having cash/equivalent, preliminary title report, and the appropriate deed ready to go 'on hand')
The MOST difficult part of this will be getting the lender to provide you with the reinstatement figure to bring the loan current (I do this and take title sub-to because it's actually easier to get the lender to provide a reinstatement than a full payoff).
To do this, contact the lender WITH the seller on the phone. Tell them that you're helping out the homeowner and have the funds to bring the loan current. Don't give up. Call back as many times as it takes until you get someone on the line that can do this for you. Sometimes they'll provide the figure and you can wire it in. I've brought cashier's checks to the auctioneer at the courthouse steps to stop the sale before. Other times the lender gave us a postponement (anywhere from 7-14 days) to get the funds sent in.
This is like pulling off a touchdown drive with a minute on the clock and no timeouts. It's nerve-racking, but a rush if you can get it done and help the homeowner avoid losing their home at auction.
I’m learning some states have laws against door knocking pre-foreclosures/distressed homeowners. I see a lot about “equity skimming” which is very specific and doesn’t mean every investor is looking to skim because they door knock.
Which states can you not door-knock? How do agents get around this? And, are there any exceptions around door knocking pre foreclosures on those states?
Hi John, I was just thinking to myself why anyone would want to door knock. I love direct sales but it seems to be door knocking for leads or sales is the proverbial "needle in the haystack" style of marketing. I personally like to use attraction or content marketing; better use of my time, less rejection (which takes a psychological toll on you) and higher quality leads. I get fresh leads everyday by posting quality, non commercial contemporary content on a daily basis.
If you're door knocking pre-foreclosures this is NOT needle in the haystack. As long as you scrub your list and confirm the homeowner still has an active foreclosure pending, you are knocking on the door of one of the most motivated sellers on the planet. I prefer that over direct mail, text message blasting or bandit signs. I'd rather talk to 5 motivated sellers per week than 100 unmotivated sellers.
I have a 30-day marketing plan for active foreclosures that includes a combination of personalized letters, text messaging and door knocking and I attempt to make contact with the homeowner up until 24 hours before their auction date. I call the last 7 days before the auction date "hell week" for a homeowner in foreclosure. They're out of time, stressed out and have few options. If you know what you're doing and can stop the foreclosure you'll close a lot of deals.
If the NOD paperwork doesn't have the attorney information, how do you know the property is still in foreclosure and when the auction is going to be held?
In Utah, you're searching for the Notice of Trustee's Sale. You can find that document recorded at the county where the property is located, or you can search public notices (here's a link for Utah):
https://www.utahlegals.com/(S(qz3suyqbucrgtawc2hx2bhv4))/def...
Search 'foreclosures' in the dropdown menu.
The Notice of Trustee's Sale will contain the "trustee" name, that is who represents the lender in the proceedings and you can contact to verify the case is still active. Sometimes it's an attorney, it could also be a title company.
Also, if you're going to the county to search for the notice they will not give you a "list" of foreclosures. The county doesn't compile lists, all they do is publish these notices.
Hope that helps!