Posted by Jeff on June 26, 2001 at 22:39:10:
Read this article: http://www.creonline.com/mm-53.html
Then read these questions and answers that go along with it.
(Everything is courtesy of John Carlson (AKA JohnBoy). Thanks again)!
- I will be taking over a mortgage “subject to.” Meaning a Wrap?
Doesn’t this execute the due on sales clause?
No wrap. You are taking over the existing loan, subject to. Yes, it violates
the DOS clause. You can hide this from the lender by first having the seller
deed the property into a land trust, naming himself as the beneficiary.
After that you have the seller “assign” his beneficial interest over to you.
You are now the beneficiary of the land trust, which owns the property.
Federal law prohibits a lender from calling a loan due when the owner deeds
the property into a land trust and remains the beneficiary of the trust.
Since the assignment of beneficial interest is done by using a seperate
form, that does not get recorded, only notarized. Since that form isn’t
recorded then the only way the lender could really find out about the
transfer is if YOU our the seller TELLS the lender about it!
If the lender checks title they would see where the owner transfered title
into the land trust. Nothing they can do about that. Then, they “might” ask
to see the trust agreement. They would be looking to see who is named in the
trust as the beneficiary. You would not have to show the lender the trust
agreement since the purpose of the land trust is to keep privacy of the
owners name(s) from appearing in the public records.
But since the owner IS listed as the beneficiary of the trust you can let
them see it just to pamper them! You just don’t show them the assignment
form where the beneficial interest has been transfered!
If you were willing to pay the seller anything for any equity they may have,
then you would assume their first mortgage subject to, and give them a
second mortgage for the equity you’re willing to pay them for. Still no
wrap. But since most of the deals that are taken over subject to the
existing mortgages, they usually don’t have much or any equity in the
property. This is why they’re willing to let you just take over the
payments. They don’t even have enough equity to cover paying a realtor the
commission to sell the property for them! You would be saving them thousands
that they would have to come out of pocket just to get the property sold!
People in this position that NEED to get out from under those mortgage
payments will just deed the property to you just to get from under the
payments!
These are NICE homes in NICE areas that have been purchased within the last
year or two! These are properties where sellers have put little to nothing
down and they haven’t appreciated enough in value to gain any equity to
speak of!
- How will there be no closing costs? Won’t the deed change names?
What closing costs??? Yeah, the deed changes names, naming the land trust as
the new owner. How much does it cost to notarize and get a deed recorded in
your county? That’s the extent of your closing costs! The seller signs the
deed, you get it notarized, then record it! That’s it, you’re done! The
property has changed ownership! Then notarize the assignment form used to
assign the beneficial interest of the trust over to you! Total closing
costs? Recording a deed and getting the documents notarized! The deal is
closed!
- I run the ad, but since I don’t own the house, how will I show it to people who are interested?
You get the deed and all the paper work signed off by the seller. In the
purchase agreement you make the deal subject to you finding a suitable
tenant before taking title to the property. Before you record the deed you
advertise to find your buyer. Once you get a buyer signed up and get their
down payment you record the deed. You’re done! You own the property and have
a buyer in place!
If you couldn’t find a buyer, then you just tear up the paper work and void
the deal! Since you haven’t recorded anything you can just walk away. Just
be sure you write up the purchase agreement subject to you first finding a
suitable tenant to place in the property within 60 days. After 60 days if
you haven’t found a buyer, then you can renegotiate for a longer term or
just tear up the paper work and walk away!
You have a clause in your purchase agreement that requires the seller to
give you a key and allow you to market and show the property to find a
suitable tenant within 60 days.
Remember, the key to all this is dealing with sellers that are MOTIVATED! If
they’re MOTIVATED, you get pretty much anything you want because you’re the
only game in town that is offering them a solution to their PROBLEM, which
is, get out from under those house payments, quick!!!
- Now which contract will come due in two years?
The contract for deed you use to sell the property to your buyer. Your
agreement with the seller is to just take over their payments by agreeing to
pay the payments every month until the loan is paid off or you sell the
property at which time the loan would be paid off early when your buyer
closes with you! Which ever comes first.
Your contract with your buyer is a contract for deed, amortizing the loan
amount over 30 years, with the principle balance due in two years! Your
buyer will need to refinance within two years to pay you off or they lose
the property, or unless you agree to write a new contract with them,
starting the process all over again. Otherwise, they either get a new loan
or lose the property and you start the process over by getting a new buyer,
with more down payment money, a higher selling price after adjusting for
inflation, meaning a higher monthly cash flow, meaning you just keep making
more money off the property until someone eventually refinances to pay you
off!
Check out Bill Bronchick’s course, “Alternative Real Estate Financing”. It covers all this type of investing.
You read about it at this link:
http://www.creonline.com/c-181.html
Jeff