All Forum Posts by: T. Alan Ceshker

Can a “subject to” transaction be done safely? 

There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage 

The positives for the seller are 

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers 

3 -possibly obtain a higher price/ quicker sale 

4 - can utilize a wrap to potentially earn the “differential” on interest rate 

5 -May be able to save the Realtors commission

All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

I'm looking for recommendations on investor-friendly title companies in the Travis County area. If you have any suggestions or have worked with a great title company in the area, I’d love to hear your recommendations!

Not to be too blunt, but you are handing bullets to a six year old with a gun. He obviously will only get himself into more trouble because he now knows 1% more than he did, but not nearly enough to keep out of trouble. And, in my opinion, more importantly, the lurkers who never comment, now believe they have the "golden key" of information.

As you already know, there is so much more to this, in order to stay out of trouble over the long term. 

He believes he can find all that he needs to know on the internet. Which of course he can. You can find everything you need to know in a grocery store to make 

Pumpkin spice loaf with almond praline dessert, too. But that doesn't mean you know the right ingredients or can assemble it without disaster. And it might not look very tempting when put together.

This part is for anyone reading this who never comments:

My humble advice to anyone attempting to do creative finance is:

Creative finance is for experienced investors who have access to capital if everything goes wrong.

1. Learn the laws
2. Don't use a contract "off the internet", laws vary by state and are also regulated on a federal level
3. Learn the financing techniques correctly
4. Don’t skip parts of the process
5. Don’t ever do a “kitchen table” closing
6. Use the proper deed
7. An attorney can help you with the legal work, but the rest you are on your own
8. Your guru will not bail you out
9. “Investing” in someone else’s deal by providing a small 2nd loan so the “investor” can pay for “cash to the seller” and for “closing costs” so he can do the deal is a very bad plan
10. Know what problems can arise
11. Learn the responses and solutions to problems before they are needed
12. Know everything there is to know about Title and what that means
13. Know who a "protected class" individual is
14. Learn the "back doors"
15. Learn human nature
16. Understand timelines
17. Understand regulation enforcement (some of these "mistakes" have a 10 year statue of limitations ( they can charge you 10 years AFTER you do the transaction) and carry hefty fines and possible imprisonment
18. The court doesn't accept "I didn't know" for an answer"
19. Know that the source of the lead plays a serious role in some states and federally
20. Know how much of a "profit" pushes the boundaries to invite an investigation
21. You can be sued by the seller if you don’t do things correctly
22. You are automatically at fault if an investigator or attorney or regulator gets involved. You have to prove you did everything right and then because of “empathy” for the poor snook who “fell into you schemes” you may lose anyway.
23. This is a legally binding transaction that will be treated that way by the law. There are regulations
24. I could go on, but if you learn this much, and apply it appropriately, you will cut down your sorrows and risk considerably.

And yes, there is much more. You can learn these things over time.

I did a loan assumption that is currently a GIANT pain in the ***. I’m here to share my story for whatever that’s worth.

Over a year ago I did a wrap around mortgage on a place here in Phoenix at 3.5% over 27 years. Everything was smooth until it wasn’t. 6 months into it the tenant called and the toilet had failed in an upstairs bathroom. The house was flooded to the tune of $70,000 in repairs. 

No big deal, I worked with insurance and contractors to get the repairs done. Six months later my insurance dropped me and here is where it gets sticky. I got a new insurance policy at a higher rate. I let the original borrower know they needed to update the lender on the new insurance policy. 

The higher insurance premium required a higher escrow payment which the original borrower didn’t let me know.  A few months go by and unbeknownst to me the escrow account had now drawn negative which triggers the lender to no longer apply what’s considered a “partial” payment to them, given that I’m now paying less that what’s due given the escrow increase required but not relayed to me even though I expected it at some point.

Last month I’m on Zillow looking at the value of my properties. One of my properties says it’s going to auction in March because it’s being foreclosed on. My heart rate goes through the roof as I have about $90k in equity in that house. I reach out to the original borrower and ask them what’s going on. They weren’t paying attention to it, and why would they, it’s not their house anymore. 

They send over 3 months of notices from the bank. $10,000 has been collected by the lender and is in an “unapplied” status due to the short payments. They are foreclosing and are not open to discuss it. I call them, they won’t speak to me about the loan at all BECAUSE ITS NOT IN MY NAME. 

I have to sell it, but guess who has to request the payoff amount from the lender….thats right, the ORIGINAL borrower. So I am at the mercy of that person for basically EVERYTHING.

I am still waiting on that payoff amount 9 days later and am up against a clock where they have scheduled the home for sale at auction come March.

Take it all for what it's worth, I've learned plenty of lessons and made my share of mistakes. One thing is for sure, if I ever wrap another mortgage I am getting a POA to access the docs on the original loan so that I am never again at the mercy of that borrower to relay information. If it wasn't the insurance it would have been the property taxes. FFS

THE END. 

Let me know what you would have done differently?!

@Ryan Mcpherson

BE VERY CAREFUL IF SELLING "SUBJECT-TO"!

It can be done ethically, but you need safeguards to confirm mortgage & possibly property tax payments made on-time, as well as insurance with you protected.
- Also, you need a legal way to take back the deed if buyer defaults!
- Land Contract would be better:)

Question: how are you going to lose $2500/month if you rent?
What did you pay for it?
What do you owe?
What is PITI?

Moved to Austin for work and purchased a home in 2021 with just under 4% interest rate. Due to circumstances at the time I was able to put 0% down without PMI. Fast forwards to 2025 and I need to move again for work. Since purchasing the home, housing market in my area has declined about 20%. This puts the home underwater.

I've calculated the following two options:

1. To sell the house, it would cost me about $60,000
   out of pocket.
2. To rent the home, I would lose about $2,500 per month (based on comparable rents in my area, property management fees, etc).

Both options loose the same amount by roughly 2 years, and by this time, I still will not have built up much more equity in the home to make selling it a break even unless there is price appreciation by then.

My dilemma is this: I speculate that my home will not appreciate much in the next 3-5 years due to the rapid pace of development in the surrounding area.

In 5-10+ years, maybe, but by then I'll have bled $150,000 - $300,000.

I have thought about this a lot and feel that I mar'-too close to the problem to see the best solution.

Any constructive advice would be much appreciated.

Hello, everyone!

Excited to be diving deeper into real estate investing and making time for my first deal. I’ve been exploring various strategies to land a solid rental property, and I’m particularly interested in trying mortgage assumption for this one.

I'm currently looking at a property listed at $350K. It was originally purchased for around $150K in 2020, with a $50K HELOC added in 2022. I'm collaborating with an investor who can help cover the remaining balance, but since the property isn't in the best shape, and maybe fairly priced, but I'm evaluating how much room I might have to negotiate. It does seem competitively priced for the area.

If anyone has insights into how the existing HELOC might impact the mortgage assumption or tips for negotiating on a deal like this, I'd greatly appreciate it. Looking forward to hearing your thoughts!

Thanks in advance,
David