Posted by Brian,WI on May 20, 2003 at 03:30:09:
How do you educate the banker?
Won’t they still want to call the note due because you are a new “buyer”?
Thanks
Brian,WI
Help- Subject to potential deal killer - Posted by paul
Posted by paul on May 19, 2003 at 17:38:45:
Here’s the deal.
Yestarday a couple signed their house over to me subject to.
Today, just got a commitment from buyer to put 25k down and lease opt.
same home.
Just got a call from the seller’s saying they talked with their banker and he said they couldn’t do that. Now they are freaking out.
What are my options other than buying the home outright?
Does buyer really know he has L/O? - NTXT - Posted by Brent_IL
Posted by Brent_IL on May 20, 2003 at 08:23:50:
.
Re: Help- Subject to potential deal killer - Posted by B.L.Renfrow
Posted by B.L.Renfrow on May 20, 2003 at 01:18:45:
It’s always difficult to undo these things after someone screws it up. But I think you still have options besides buying outright.
I’ve seen several similar posts here recently, and I always wonder whether the investors in these deals have discussed the DOS issue in detail with the sellers, and explained the ramifications of them running to the lender and asking permission – which will NEVER be given. Or are folks simply putting documents in front of the seller, saying, “Sign here, and here…”
I’ve done a number of subject to deals, and while I had my share of problems with them, this was not one of them. I’ve NEVER had a seller rat me out to their lender, probably because I’ve taken the time to explain the DOS clause and what will happen if they wave the violation in the lender’s face, and I explain how that won’t benefit either of us. Granted, it’s sometimes difficult to explain to the seller why what you’re proposing is legal, when you’re telling them not to talk to their lender, which makes it sound fishy. But given a simple, but thorough, explanation, most sellers will understand to keep their mouths shut.
Of course, there’s always one somewhere who will ignore your request because of ignorance, arrogance or just because they’re scared something worse than losing their house will befall them.
As for what to do now, the first thing I’d do is reevaluate whether these sellers are people I could do business with. After all, if they’re doing what you specifically asked them not to do, and causing problems by “freaking out”, what else will they do behind your back before their loan is paid off and they’re out of your life?
If you decide you can still work with them, and if they can be persuaded to understand the reason for keeping the details of the transaction to themselves, just ignore their goof and proceed. After all, unless their lender is a very small institution, the person they spoke with is not likely to learn of the transaction.
And how in the world did you get a T/Ber to put up $25k as option money? This must be a very expensive property.
Brian (NY)
Re: Help- Subject to potential deal killer - Posted by Russ Sims
Posted by Russ Sims on May 19, 2003 at 18:50:29:
Did you explain the due on sale clause to the sellers and have them sign a disclosure about it? This is probably what the banker is referring to when he tells them they ‘can’t do that’…because your subject to transaction violates the due on sale clause. You need to tell the sellers that there is nothing illegal about violationg the DOS clause.Yes, the bank can call the loan due if they find out about the transaction but the bank will never know of it since you guarantee the payments will be maintained, and since you or the seller will take no action that would alert the bank of the transfer. Are you using a land trust? If so the bank is prohibited from enforcing the DOS clause anyway, due to the Garn St. Germain Act. You tell the seller that you are using the trust to avoid the DOS issue. If what I’m saying is gibberish to you, then you need to be better grounded in the principals of ‘subject to’ before you do these transactions.
By addressing the DOS issue up front with the sellers, they’ll know not to spill anything to their bank and in the off chance they do, they won’t be surprised when their banker warns them of the DOS violation. You will have already addressed their concern and put them at ease about it.
Russ
Re: Help- Subject to potential deal killer - Posted by Joshua_NE
Posted by Joshua_NE on May 19, 2003 at 17:55:09:
did you find out why the banker said they couldn’t do that? Subject to’s are legal, assuming you did the paperwork right. Is this your first sub2? this is just my 2 cents but you may need to briefly educate the banker to allay the seller’s concerns.
can I ask how the heck you got 25k down for a lease option? Is the house worth $800k?
Russ… Your statement is inaccurate. - Posted by Adam (in Austin)
Posted by Adam (in Austin) on May 19, 2003 at 20:40:12:
Russ,
You state: “Are you using a land trust? If so the bank is prohibited from enforcing the DOS clause anyway, due to the Garn St. Germain Act.”
Your statement is inaccurate. They (the lender) can’t use the land trust as a red flag for calling the note due. But if they find out by other means (like if the owner tells them!) they CAN/MAY call it due, and will not be in violation of the Garn-St. Germaine Act.
- Adam.
Re: Help- Subject to potential deal killer - Posted by Lyal
Posted by Lyal on May 20, 2003 at 08:05:39:
Joshua,
They can’t do that because it violates the due on sale clause in the mortgage.
I’m not saying don’t do it, just that you need to use a process that doesn’t set off the banker’s alarm bells.
Lyal