Quote from @Account Closed:
Quote from @Marcus Griffin:
Im closing on my 1st subto deal at $300K(240k mortgage balance, $60k Partial claim balance) Seller interest rate is 3.4% payment is $1900. I'm looking to wrap this to a end buyer for $350k at 9% interest 10% down. Should my wrap loan be for 30 years or should I include a balloon. Rent is $2200 in area. My 1st deal ever. Looking for experienced investor input.
Ok, here is some experienced investor input.
Don't do it in Texas. Yes, yes, I know, it's legal. That isn't even the issue. Do you have $360,000 available to you on short notice if the loan gets called?
You have about 30 days to cure a Due on Sale call.
a. If you do as you suggest you want to do, you no longer own the property. If the loan gets called, you can not force the sale of the property to cover the wrap unless the borrower has violated the terms of the agreement. Then you have to take him through foreclosure, which takes time and money.
b. You no longer own the property, so you can't refinance out of a note call.
c. When taxes increase, when insurance goes up, when other things happen, how do you cover those?
d. You can be sued (and investigated) if you screw things up.
However, if you have available cash on short notice to pay off the underlying note, it isn't a problem. But now, you have defeated the reason for doing the Subject To and have become a lender to someone who probably doesn't qualify for bank financing. So, you could be stuck with that money tied up for the length of the wrap.
If the Subject To teacher you learned that from told you this was a good idea, go get your money back.
Bob
Not trying to start an argument here - just detailing my experience here.
I agree with much of what you say. And the gurus have just about destroyed this industry that I have been in for 20 plus years.
We have closed well over 10,000 wraps (I use wrap to mean assumption and wrap) in the past 20 years or so. We have had about a dozen due on sale issues and we fixed each one. I have never had a foreclosure because of a due on sale issue. We simply fix them if they occur. When the 1st notice goes out, we have about 90 days minimum to fix.
The key is disclosure, disclosure, disclosure. The end buyer and seller know a fix may be needed. All agree to cooperate if the issue arises. And, no issue should arise if closed and managed correctly. We also use a trust structure to help protect the transaction when needed.
I do agree with you that having the dollars to pay off the mortgage if something occurs is best practice. But not having this should not stop you from investing via wraps. You just need to close correctly and legally.
We have several information and instruction documents we send out for free to anyone wanting to learn.
I will reiterate -- no fight intended -- just advising what we have seen, done and developed over the past numerous years.
Stay safe out there guys
Alan
