Posted by Stacy (AZ) on June 19, 2001 at 13:12:29:
Thanks, Monique. I should have been more clear, however. I see other investors getting the sellers to make an additional 1, 2 or 3 payments after the property is deeded (SubjTo). How do you do ensure that the sellers will do this? Once they agree, do you just use the “hope and a hand-shake” method? Even if you used a note, would you really expect to sue them if they didn’t send a payment or two?
Stacy
How to get them to make some more payments - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 18, 2001 at 20:45:31:
I’ve never had a seller make payments after I’ve taken a property subject-to. I haven’t needed to because my numbers were OK, but I’d certainly like to start proposing this to decrease my out of pocket, and increase my profit.
How do you get them to do this? Do you just hope they do as they promised after you’ve been deeded the property, or do you have them sign an unsecured note? Without a note, I can’t see how you can expect the sellers to continue making payments on a house they no longer own. Or, do you just tell them you won’t be making any payments for X months, and let them know their loan will go into default if they don’t do as promised?
Stacy
Re: Thanks, all - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 19, 2001 at 23:59:49:
Thanks to you all for the examples. It makes sense to me now. Also, thanks again to those who emailed me.
You people are golden.
Stacy
Re: How to get them to make some more payments - Posted by Tarun_MD
Posted by Tarun_MD on June 19, 2001 at 21:56:15:
Recently, I did a subject to were the seller agreed to make the next five payments. She agreed to vacate the property by the end of this month.
I put the following clause in the purchase and sale contract: The Sellers agree and promise to make the PITI payments for the months of June, July, August, September, and October 2001. The total of these payments is $7500 and this amount shall be secured by a promissory note to the purchaser.
I had them sign a NO Interest promissory note paying me approximately $1500/mo. Make sure that they make the payments to You and not the lender. I even went as far as asking the sellers to give me 5 post dated checks for $1500 each.
Next time when I do a deal like this, I’ll probably get the note secured by something.
Tarun
Re: How to get them to make some more payments - Posted by Andrew
Posted by Andrew on June 19, 2001 at 16:01:50:
Stacy,
In the ‘ABCs of Subject To’ they talk about having the Sellers and their parents sign a Promissory note. They also explained that they say “As soon as we get your check, we’ll send in the mortgage payment, … so don’t be late”…or something to that effect.
Of course, if the Sellers owned other property, you could also record it as a mortgage.
By the way, how do you determine if the ‘subject to’ deal is good enough. Do you use a % of FMV or is it based on payments? Just wondering how others figure out which ones to pass on.
Thanks,
Andrew
Re: How to get them to make some more payments - Posted by Jim IL
Posted by Jim IL on June 19, 2001 at 15:11:42:
Stacy,
Well, I noticed this post when it was first posted, and then again today.
I gave this some thought, because I’ve done this same scenario a few times, and each time I question things about it, trying to make it more secure.
So far, I’ve been lucky, all the sellers have paid as the agreement stated they were to.
I was not sure until I read your post what you were asking? Where you looking for a way to talk the sellers into making the payments? or where you asking what to do to insure that they pay after they agree to?
You said: "How do you get them to do this?
Just in case your asking how to “pitch” the idea, I’ll try to cover how I do that. I tell the sellers that my funds, time and energy will be going to obtaining a qualified person to buy the home, so I can get my profit, and the loan can be paid off entirely as soon as possible. This will take some time, as well as a rather large expenditure on my part, so they need to make a few more payments. If they claim to not have the money to do this, we talk about what they do have and see if we can liquidate something.
Anything they can contribute helps, and it helps them.
“Do you just hope they do as they promised after you’ve been deeded the property, or do you have them sign an unsecured note? Without a note, I can’t see how you can expect the sellers to continue making payments on a house they no longer own. Or, do you just tell them you won’t be making any payments for X months, and let them know their loan will go into default if they don’t do as promised?”
I have done some of each of these. On the first one, I just had the purchase and sale agreement include a clause stating that they were responsible for $x amount in payments, and I would start later. I also had the agreement state that they were to pay me driectly, not the lender. This way I could be sure they sent the money in or not.
It worked, they paid, but there was really no recourse for me if they did not. I knew this, but was okay with it, because I bought right.
On one other one, I had a note written up for the amount of payments to be made, and secured it with the sellers car. He paid me too.
I’ve also had them sign an unsecured note, as well as the purchase and sale agreement with this in it.
This way, at lest IF we did go to court, I could show where the seller acknowledged the agreement to pay TWICE. Not fool proof, but it seemed to get the importance of paying across to my seller, because they paid as well.
To me, if the seller has another property they are buying, then maybe a second will work on that to secure you better.
But, most of the sellers I deal with in Subject to deals are not going to have another home, they are in financial stress and will probably rent for while.
I try to buy the homes with enough room in them to allow for the sellers not paying anything, and just consider the money they do send, if at all, as gravy.
If you come up with a good solution, please let us know here, I’d certainly be interested in adding it to my toolbox.
Thanks for the post,
Jim IL
Re: How to get them to make some more payments - Posted by MoniqueUSA
Posted by MoniqueUSA on June 19, 2001 at 12:28:40:
Stacy,
Typically, I’ve only had sellers make 1 or 2 payments after the deal. If I expected a Seller to make payments for a long period of time, I had the same question … what recourse do I have if they quit making payments?
JohnBoy posted an excellent response. In fact, I’m a little embarrassed that I didn’t think of it. Here’s the link:
http://www.creonline.com/wwwboard/messages/33812.html
MoniqueUSA