Originally posted by @Nick Tiscareno:
Thanks for the quick reply BP, thats what I'm starting to like about this online community.
I will pass it forward.
Read All Of This Please
Entering a contract with a financing arrangement turns your unilateral sale contract into one with bilateral agreements, you can not assign a bilateral agreement without the consent of the seller.
A subject-to sale is an installment sale by the seller, you make payments and when the debt is paid off, you clear the encumbrance with full title, the seller can't convey full title until the debt is paid.
When a seller agrees to allow you to make payments for them or on their behalf, they are providing a financing arrangement for the buyer. That is a bilateral obligation made between the buyer and seller, bilateral meaning only one party (the buyer) must perform under that agreement.
Basic contract law governs your contracts and agreements. Commingling different types of contract obligations with various investor strategies, at an investor's whim, is dangerous, your contracts must "fit" the strategy to be used.
I'm not saying you can't mix contract obligations, I'm saying you can't employ just any strategy (like wholesaling) with agreements that, in this case can't be assigned lawfully unless you modify your strategy to conform to the type of agreement being made.
The reason, or thinking is, when one party relies on the performance of the other party and they have no obligation the arrangement becomes more personal where the party obligated to act is selected, chosen, allowed or underwritten by the non-performing party. All financing arrangements are bilateral, the borrower is obligated to perform by making payments, the lender is not under any further obligation to the borrower under that agreement.
Financing agreements are personal and private between a lender and borrower, the lender selects who they lend to, the lender relies on that specific borrower to perform as agreed. Because of such reliance made, a borrower can not simply "assign" their obligation to that lender without the consent of that lender.
In contrast, a purchase agreement is unilateral, both parties are required to perform and either party may assign their obligation without consent of the other, so long as there is nothing stated to the contrary or conflicting law. You can assign a sale contract without consent. You cannot assign a financing arrangement without consent!
That means you can't wholesale a contract that is not assignable without specific consent by your seller to allow just anyone off the street to step into your shoes and perform your obligation to pay.
In a Subject-To transaction, not only is the mortgage holder in a lending position but the seller is by agreement, they are providing the use of funds, as a lender, by selecting you to undertake the obligation. The consideration being given by you is the payment of the seller's debt, you don't have to pay directly to the seller, the seller benefits from you paying their loan, this is still a lending arrangement.
Thing about Sub-To deals they are usually done improperly without any recourse for the seller, there are deed restrictions that can be used or liens filed to allow a seller to act other than making payments for a propegrty they don't own!
If a buyer in a Sub-To fails to pay as agreed they are in default, breaching the terms made and it causes financial and non-financial harm to the seller. This is where tortuous conduct arises, causing a loss for another party and where the seller sues the buyer for damages (and don't forget the damages to the seller's credit standing which can be very expensive.)
Now, the remedy:
You will need to obtain the seller's consent to assign your obligation to pay! That probably blows up your deal if you have been trying to operate as most do or the "guru way", you know, the sneaky way of making the seller think you're actually buying.
So, the other way is for you to sell subject to your obligation, you stay in the deal remaining obligated to your seller and allow your buyer to pay your debt, that means your buyer will be paying the underlying lender, paying your obligation by paying your seller's obligation.
Yes, you're playing with fire, but you're legal, you're also exposed to risks of the mortgage being called due and performance under your contract.....but hey, you're making money, right? Wholesalers already assume risks with what they do (most aren't even aware with a clue). Risk and reward, they go together, the nature of business.
While this creates a real mess, I only mention this as a very short term contracting ploy with a cash buyer. An end buyer who must obtain financing to buy from you will likely shy away from the loan with a recent sale transaction and being 2 Sub-to deals and the title folks aren't going to hug you either, but title can be cleared, so have a cash buyer! And, to do this you must take title under your Sub-To contract, then sell.
What I really suggest is that 1. you learn real estate and basic contracting before you hit the streets trying to wheel and deal; 2. Stay away from Podcast # 70 as well as any mortgage actor selling Sub-To deals with assignments; 3. Don't wholesale as the gurus and beginners know or do, learn to partner, use an entity, take title, join in title with your seller. 4. Act legally and ethically, decide at the very start if you want to be a trickster and deceiving con-artist breaking laws (not saying you are) or if you want to be a professional in real estate and if it's the later, get a real education, it doesn't take that long for those with average intelligence.
My suggestions can keep you out of trouble, from personal liability and financial ruin, from wrecking your reputation and even keep you out of jail in some cases! Best of luck :)
