I am trying to find out what I can do to short sale a property that I deeded to an investor who has not been making the payments and now I am being threatened with foreclosure. I have no money to hire an attorney to help so not sure where to turn. Has anyone run across this before or have any advice on what I can do?
You wern’t scammed. You walked in the front door.
You just are in a deal that someone told you was a great way to make money. With no pitfalls and no money required, right?
The big issue is why aren’t you making the payments? Regardless of whether the investor is paying. Isn’t it “your” obligation to pay the loan.
The easiest way out is somehow to convince the investor that you are suing him for failure to honor his contract and then have him deed it back to you so you can sell the house.
But for now make the payments.
P.S. - You have “no money” - then you probably should not be in that type of risky business.
Maybe I wasn’t clear enough. This is a home that I purchased a while back as a rental property. It became unrentable because of the tenant leaving it in a complete mess. I could not afford to fix it up and the balance was more than the value. I had no rent coming in so therefore I could not keep up with the payments. The investor knew this when the home was deeded over to him. I should have tried to short sale it then but didn’t know I could do this. So now I’m stuck with a threatened foreclosure looming over my head and an investor that won’t reply to me.
Thats really no different
A RE investor has to have the ability to bail himself out of jams. No cash no credit means dont buy a rental property. Anyway, I still dont know how or why you deeded the property to someone. I do a few rent-to-owns but do not deed until the house is paid for. Your only option is to foreclose on the mortgage to the dude you deeded the property to. I assume you filed a mortgage.
I am still unclear how or why you deeded a house to someone when the house had a mortgage that you owed. That makes no sense.
Go to the house with a deed and have the investor deed it back to you. Pay him $500 to do it. Whatever it takes. Take him to a notary and give him the cash when he & his wife signs the deed.
Talk to your attorney about this.
I was in a similar situation 25 years ago. We had 1 rental in 1985. The best we could rent it for was 350 and the payment was 550. A coworker of mine told me to just work a little extra each month and keep the house until rents came up. I bailed and sold the house for what I could get. I wish I would have stayed in the game. I did not get back in the RE business for 18 years…
Arlanj, I really don’t need the lecture. I’m well aware of what I did. Sometimes things happen and you run out of money and your credit takes a hit. I had money at one time and it sucks now not to have it.
I deeded the property over to an investor who took it “subject to” the financing so I was still responsible for making the payments in the lender’s eyes, but the investor agreed to do that with the rent he would get. He’s not getting rent so now he’s not paying. I’m unfortunately 6 hours away so I have no idea what’s going on with this guy. I will keep trying to contact him and see if there is any way he will “sell” the deed back to me so I can proceed to short sale the property. I do appreciate the response though.
Sorry for the lecture
Do banks normally allow someone to deed a property to someone not on the note. I was thinking there was a “due on sale” claus in loan contracts.
I am just trying to learn something and provide information to others thinking about subject to deals.
This type of situation begs the question- The subject to buyer never really has skin in the game do they? They can walk away at any time that things go bad.
In our area there are many selling rent to own houses. When someone asks me about them, I tell them to be wary. Anyone like your investor could “rent to own” a house that they do not really own. It could be a rental, or one that is subject to. Suppose your investor takes a large down payment and then some monthly payments for a few months knowing that the bank and the original owner will find out in a few months. They could do several of these deals and make a ton of money. Then vamoose. I tell people to make sure they know who actually owns a house and if there are any mortgages before signing any contract and for sure before giving any down payments.
The six hours away is killing you. If it was across town, this probably wouldn’t be hard to fix. I have had houses in neighboring towns. Even moderate distances can be an issue. Most of my rentals are within a 5 mile radius. I can be at most of them in a matter of minutes.
I say high-tail it to the house and ring his chicken neck. Get your deed back.
Hire an attorney in the area to get you out of this mess. You probably have no choice if you want to avoid the foreclosure. I do hope it works out, good luck.
KBKING67 & ARLANJ.
Arlanj, please get infomred on what you are doing before posting bad info.
KBKING67, Yes, you are in a mess. Most do not understand that when you sell “Subject To” you are at the mercy of the buyer.
Like you say, he does not pay and you wind up in trouble.
Subject To has been around as long as I can remember.
The Due-on-Sale problem arose out of a lawsuit in Southern California. Lady sold her house and B of A said NO. She sued and won. B of A appealed and got it reversed.
Then along came Garn St Germain Act which lists the only real “no DOS risk free” ways you can do subject to.
Google Garn St Germain and you will find this.
Google Wellenkam vs Bank of America and you will find the case that caused the DOS to become law.
Right now, lenders are more interested in getting paid than they are in exercising their right to call the loan.
However: that does not mean they will not call it.
One solution you could have used if you had known about it was a Performance Mortgage…you have your subject to buyer execute a Performance Deed of Trust which says if he fails to perform you can foreclose him out and get the property back.
You did not know of this so you could not do it.
Now, your lender says you are behind and they want their $$$. They have no contract with your buyer, know nothing of him, his financial capabilities, etc., so they look to you.
If you cannot afford a lawyer, go to one of your local free law clinics and explain your situaton and perhaps they can assist.
Good Luck,
Bill H
Bill, Bill, Bill
“Arlanj, please get infomred on what you are doing before posting bad info.”
Bill
I am not sure what bad info you refer to. I am just trying to learn about these subject to’s, when I asked about the “Due on sale claus”. Anyway, I take no offense.
We educate each other when we post and banter back and forth.
Arlan
I agree with Bill H. It was clear to me from the first post that kbking is not a sophisticated investor and just got tricked into Deeding the property subject-to to another after he became financially distressed. I am sure kbking had no actual knowledge of the clause in the DOT that prevented him from Deeding the property to said investor.
To answer kbking’s question, well if you have ‘no money’ then there is not much you can do about it now other than filing a lawsuit compelling him to Deed you back the property. But if you have no money then you can’t cure the default. So, no money equals no solution.
The OP could use some suggestions that apply to his situation, folks. The situation he is in today. Arlanj: Selling and buying properties subject to existing financing is done every day, and is not not a far-out, creative real estate strategy. You might want to get informed. You might learn something. And you might enjoy it.
KBKING67:
Did you have any written agreement from when you deeded the property? Anything about the payments or when he would re-fi/payoff the loan? Anything in writing that committed the buyer to the payments. Even an email may be helpful here.
Are you in communication with the investor and will he deed the property back to you? This may or may not be in your best interest. There may be liens against him, hence they are now against the title of the house.
What are the numbers? What do you owe, what’s the value? What’s the condition? Who is your lender?
Is the lender foreclosing for non-payment and are you sure of this? If you are able to get the deed and the title isn’t too messed up with past due taxes and/or other liens, you may be able to deed it back the lender.
Also, what state are you in? The type of foreclosure and the time frame makes a difference.
I concur with Kristine’s points. KBKING67 is in a bad predicament and is looking for some advice on what do now. Subject-to is a proven method for transfer of real estate and not some far-out, crazy scheme. With that said, you need/should have worked with someone who knows what they are doing. There are many people attempting to subject-to, that may not be doing it correctly/legal for the state they are in. In any case, all these transactions should be overseen by a RE attorney who does subject-to.
When you get your property back from this investor, you still have the original problem to deal with your property and try to avoid a foreclosure on your credit.
I’m not sure what this particular investor is doing with your property, but for an investor who doesn’t want to put money into the property or fix it up and rent it, the typical subject-to strategy would be to; re-sell it to an end buyer and earn some money on a down-payment from them. Your mortgage payments would then start getting paid once the new buyer is in and starts making payments. Your payments in arrears should be paid off from the down-payment as well. So perhaps this guy can’t find a buyer, so the place is just sitting. From your description, it sound like the property is in bad shape.
In any case, at this point, I think your only recourse is to speak with a RE attorney who understands subject-to transactions. (not many of them do) From what I know, I suspect the “deeding” of your property to this investor might not stand up in court, so the house is potentially legally still yours - but only an attorney can say for sure.
If you don’t want to hire a RE attorney, you might be able to get it resolved by working with another investor who really knows how to do subject-to and is working with an attorney who can work through this mess as part of a new subject-to transaction that the RE attorney oversees. Send me an email if you like, I’ll see what i can do.
L.Chafe, Great Cal Homes, lchafe@greatcalhomes.com
OK, I do sub2’s every once in awhile and understand what can happen if they are not handled right. This area of knowledge is lacking even in experienced investors and so you are not alone even as a newbie.
If things continue your going to have a foreclosure on your record anyway. Not the worst thing in the world actually. With the information provided I would never make up back payments on this deal, that would only be helping the guy sticking to you.
You need to have control of the property to have a chance of fixing things, well not really but counting on the idiot to co-operate is high risk. I would demand in writing that he deed the property back to you now for no money, after checking for any liens that may have attached to the property since he bought it.
I am beginning to think that he was not a very experienced investor and not too bright, but I would tell him in the same letter that if this matter is not taken care of you intend to sue him for fraud because you were induced to sign the contract on the basis he said he would make timely payments on the loan and keep it in good standing. Does he own other property, have a job?
At the same time I would be looking for a buyer, maybe an investor buying in the same area, try the computer, and maybe that buyer could deal direct with the loser and solve two problem.
A few suggestions for kbking67
Hi kbking67,
It’s unfortunate what happened. I’d like to give you a few suggestions, and also make a comment on the subject for the benefit of others on this forum.
The mistake you made was that you deeded the property away without putting a legal instrument (a lien) in place to get it back. Now, you should NOT feel bad about it because even attorneys have made that mistake. I have purchased way over a hundred properties Sub2 and I can recall at least 5-10 from attorneys - guess what, none of them asked me for a lien back!! They, like yourself, did not have education nor experience in that small niche of RE. Luckily for them, I knew what I was doing, AND was buying way below market, so it all worked out… so don’t feel bad.
The steps I’d suggest:
- Decide what’s more important to you - avoid foreclosure, or avoid the hassle of dealing with it.
For example, let’s say you already lost a few properties recently to a foreclosure. If that’s the case, your credit is damaged and you may not want to go thru hassle of getting it back, finding a buyer, short sale, etc.
Also consider: Most likely, since it’s a rental property, you won’t be liable to the lender for deficiency but you need to verify that since it varies from state to state. However, you may have 1099 issue, so check into that as well.
If your credit is good, then it will make sense to try to have a better outcome than foreclosure. Then do this…
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Find that investor, skiptrace him if need be.
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Contact him yourself, tell him that he will soon be served with a lawsuit and that you’re giving him the last opportunity to deed the property back and not get sued. Don’t attack him after saying that, just work w him to get it back.
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If that doesn’t work, it is worth spending a few hundred bucks for an attorney to write a letter stating pretty much the same. Since you found the guy, the attorney will not need to do too much, just send the letter so it could be done for i.e. $200.
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Once you get it back, you have a few options depending on the equity position.
a) if you owe 100-110% of FMV (approximately) or less (that’s including any liens he might have gotten in meantime - hopefully none), you could sell the property on Owner Financing (10% down & sub2 but the proper way-I’ll explain below), or get in it a Lease Option buyer. Either would provide the best outcome.
NOTE to others – investing out of area is NOT a good idea. The above suggestion is a lot harder to do when you’re 6hrs away.
b) if you owe a lot more, then Short Sale is the only option. Once you get it back, find an agent who specializes in SS in that area, list the property w them and let them do the SS.
I wish you all the best, but at the end, don’t stress too much. It’s an expensive lesson, a money loss as well, but if you take it the right way, you can become an expert in Sub2’s and make ton of money back! 
NOTE to others:
Whenever you give any rights to someone else (either you sell by giving a deed away, or giving an equitable title via Land Contract, or you rent, whatever…) you MUST have a proven way to get it back!!! You MUST plan for the worse case scenario!!!
If you give a deed away Sub2 existing loan, you need a security instrument (a mortgage, or deed of trust) so you can get it back.
In mortgage states that instrument is called “mortgage”, and in this case of giving the deed sub2, it’s a “wrap mortgage” because it wraps the existing one.
In Deed of trust states, it is called “deed of trust”, and in this case of sub2 it is called an AITD (all inclusive trust deed).
Any more experienced title co./escrow/attorney will know how to do this.
As always, with wraps the key is to get a lot down (10%+) so you can come out ahead if you had to foreclose to get it back. Now this is a lot more extensive subject for this post bec. the strategies vary from state to state.
>>> IMPORTANT ADVICE >> RE investing can be very very profitable when done the RIGHT way. But it can be way too much hassle for little or nothing back if done the wrong way. So GET EDUCATED!!! Go ahead and join the coaching they offer on this site – it’s well worth the investment!! You need to do it and I’m not saying bec. I have any financial interest bec. I don’t (I’m an outside contributor only), BUT you do need this coaching and Help!
Take care everybody, and “seize the moment” – we now have the best opportunity in RE that we’ll ever have in our life time - I’m serious! That’s the reason I’m so busy and don’t have much time to contribute here, which I apologize for.
Marko