"Sub2" - Posted by alex

Posted by John Corey on May 30, 2006 at 11:27:55:


“Sub2” - Posted by alex

Posted by alex on May 27, 2006 at 09:44:22:

Hi all

I just had my first situation with taking property with “Sub2” that I never read about or ever experinced before.

About a year ago I took a property “Sub2”, paid the back payment and took the deed. I had the original owner, with my assistance, request their bank to send all the paper work to my office as I always done before. After about 4 months I assign my position to a new buyer for $25k. I quit-claim the deed over to the new buy and all was going well.

Now it seems the new buyer is two months behind in the payments. The bank still thinks I’m controling this account. But at this point I have no further resposibility to this account. Because I quit-claim the property over to the new buyer. Or is there some legal issue I might not be aware of?

This information I received just two days ago. So my thoughts are I’m going to offer the same option to the new buyer as I did with the original owner.

My question to these matter is, has anyone else run into this situation? And if so, how did you handle it?

Thank you and I look forward to anyone response in these matters.


Re: “Sub2” - Posted by JJ

Posted by JJ on May 28, 2006 at 01:41:21:

I am not an expert, but didn’t you know what subject to means? - Subject to the existing loan. I hope the original seller was smart enough to take large deposit from you to cover his foreclosure expenses on you and your buyer (btw it was YOUR obligation to make sure the mortgage is paid on time, unless otherwise specified in your subject to contract).

That’s why I never sell subject to unluss I get a large amount of $$$$$, so the buyer has something to lose if they fail to make payments, also NEVER allow a second time SUBJECT TO sale, in your subject to contract!!!

Nothing personal, but seems like your seller’s credit got screwed and you have to take care of that.


Aspirin and pain pills… - Posted by JT-IN

Posted by JT-IN on May 27, 2006 at 23:10:49:

Take a few or each for all the bumps and bruises that you are getting, about your approach with Subject To, with the sizzling answers (most) posted below… Ouch.

I suppose it depends on what your contract states with the Seller, as to whether you have a legal responsibility to resolve this problem, or not. Courts today seem blur the fine print between what a RE Investment (Professional) must do or not do, in order to be in compliance with state statute. Frankly, there are lots and lots of hidden obstacles in these shark infested waters today, that even a well intending party, can easily run-afoul of the law multiple times, when dealing with such matters.

The best way to not be made an example of, is to never let something get too far out of hand… With that said, you may be best served by intervening, or attempting to do so, with the Buyer who has now fallen behind 2 payments. Of course you have no control here, which is one of the issues with selling subject to, and the buyer is under no obligation to do anything here. They can clearly tell you to pound sand, and you have NO standing to anything, or obtain a Deed for the property… or for that matter, if that party had recently accumulated a judgment against them, you wouldn’t want a Deed for the property. This can be messy, for sure.

However, all that wasn’t your question… and it seems that you have done enough of these deals where you may well be aware of every comment in the thread so far. So how do you get the company to stop sending you Nasty-Grams…? Maybe you can’t, at this point, with delinquaint payments… they may well continue sending fan mail to everyone they have on record in connection with the acct.

You should have a POA from the original owner to you, which you can use to instruct the Lender to start sending all correspondence to “Buyer 2”. This should pretty much solve the issue… However, since the acct is now delinquaint, and when instructions arrive such as this, without funds to bring the acct forward, many times it simple sends up a red flag and the Lender then begins to dig. So, we are back to the starting point… things could begin to get ugly’er as it relates to this mtg and the original Borrower. Surely if the Lender pulls a title update, they will be well aware of the transfer(s), and then be knowledgeable that the primary borrower, is several times removed.

Another point of extreme importance here… that raises a question… How did you take title to the property…? In a Trust, Entity Name or Personal Name…? The relevance to this, as you are likely aware, is that party whose name enacted the transaction originally, is liable to become part of public record, if things continue to head south relative to the existing mtg payments.

Sorry for the epistel here… This is not all written for your benefit, (if in fact you find any benefit in it at all), but for the benefit of others that may well read the entire thread, and wish to benefit from the overall exposure to other issues at hand in a case like this.

Just the way that I view things…


Re: “Sub2” - Posted by Rob Ricker

Posted by Rob Ricker on May 27, 2006 at 17:58:39:

As an investor, you should never sell via “subject to”. Buying “subject to” is ok, but you should sell via Lease Option, Land Contract, or some other form of wrap. You are still morally responsible to pay off the loan, so why give up control to your buyer? With a Lease Option or Land Contract you can evict the non-payer if you need to and collect $25,000 AGAIN from another buyer!!! Since you sold “subject to” all you can do now is offer to buy the property back and make things right. STAY involved in your deals and make sure they get closed right!

Re: “Sub2” - Posted by MMNC

Posted by MMNC on May 27, 2006 at 14:58:45:

Alex…I am going to go a different route and offer up some future solutions. Understanding of course that this particular deal just didn’t go as planned.

I always use a 3rd party management company to receive and dispurse funds between my seller and my home buyer, for me(about$15.00 per month). I don’t allow my home buyer/tenant in the home until they at least have enough money down to place 2 months of mortgage payment in escrow(anything above is my upfron profit). Not to be touched unless the tenant/home buyer does not make the payment to the mgt company 3 days after it is due. This way the mortgage is always paid at it gives me 60 days to figure out if I want to kick out the non paying tenant or make it right one way or another. It’s more upfront work, but you can’t allow yourself to lose control of the deal. I always deed the property into a 3rd party trustee as well, keeping us all int he deal with benficiary interest. It keeps these deals clean and accurate.

Hope this helps.

Given the advice, what now Alex? - Posted by John Corey

Posted by John Corey on May 27, 2006 at 12:13:34:


You have heard from a number of people. No one thinks you are free and clear of the deal. The liability for the loan does follow you at some level. Maybe not 100% but definitely not zero.

The two late payments are enough to damage the borrower’s credit and you can be held liable for the damage. You need to get in front of this one. What might actually happen in court can be debated but it would be best not to get that far.

Reconsider how you structure your deals. The quit claim says you have no legal interest in the property. It does not make any claim about your legal or moral obligation to the borrower on the loan you took over.

John Corey

PS. There was action by the Oregon Attorney General on subject-to deals. The result was the buyers (folks in your shoes) were held liable for any credit damage done to the borrower if the loan was not kept up to date. This is very much a view from 1 state and will not apply to all states. It is considered fraud if you intentionally did not expect to keep up the payments vs. just a failure to deliver what was promised (directly or indirectly promised) if you fell behind. As you are operating a business with what might be a flawed business model it is hard to say what a judge might decide (the flaw being you did not keep watch and control over the loan payments yet still have the liability).

Re: “Sub2” - Posted by Max-Va

Posted by Max-Va on May 27, 2006 at 11:58:31:

I read the replys to your post. People are being harsh today.
You are in a bad position. You bought the property sub-2 you agreeded to make up back payments and keep loan current. This is your agreement with the seller.
Your selling the property to your buyer does not release you from the agreement with the seller. You are now stuck in the middle. I have not seen your paperwork so I can’t say for sure about legal but you are obligated morally to make this right. Contact your buyer and find out what the problem is. Maybe buy it back if you have to.
Depending on how the paperwork was written You could be sued for breech of contract and have to pay for damages to sellers credit as well as punitive damages.
I have bought many properties sub-2 but never sold that way for just this reason. You did not assign anything, you sold the property with someone elses financing in place. A big mistake. These things are what State Attorney General love to get hold of and rightly so. After a fews of these the lawmakers pass a law that bans creative real estate practices for us all.
Step up and do what is right and get this resolved pronto.

Re: “Sub2” - Posted by Todd

Posted by Todd on May 27, 2006 at 11:46:24:

When you take over a house Sub2, you are promissing to be responsible to that person to make sure the payments are made on time. They can and should come after you for there trashed credit. Your assignment and release of liability wont hold up in court either. There are too many shady investors out there that you cant trust your reputation with, and that is what happens when you assign sub2’s.Get this under control fast. Good luck

Re: “Sub2” - Posted by Levi

Posted by Levi on May 27, 2006 at 11:00:48:

Its people like you that cause legislators to enact laws that severely limit our creativity and flexibility. I hope you’re not in my state.

Re: “Sub2” - Posted by len

Posted by len on May 27, 2006 at 10:49:37:

IMHO. You absolutley DO have responsibilty to that account. You must make up back payments and get the deed back from your buyer. Your responsibility remains with the homeowner you originally bought the house from sub2. That homeowner did not make a deal with the person YOU sold the house to… they had a deal with YOU. It is your reputation and integrity on the line. Do what you have to do to insure that the loan owners name and credit is not further adversly affected. It is the right thing to do.
again just my HO

Re: “Sub2” - Posted by Joe Kaiser

Posted by Joe Kaiser on May 28, 2006 at 01:47:26:


How is the original seller going to foreclose here?

What’s a deposit?

Seems like you’ve got competing concepts running amuck.


Superb post JT - Posted by Rob Ricker

Posted by Rob Ricker on May 28, 2006 at 01:31:56:

I couldn’t have said it better myself!

Re: “Sub2” - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 27, 2006 at 19:28:32:

If he had sold on a wrap how would anything else be different?

Re: “Sub2” - Posted by alex

Posted by alex on May 27, 2006 at 16:16:52:


This is very good information, thank you. As I mention earlier that I really didn’t give a lot of detail as to how I structure the deal. When I first aquire the property taking it sub2, I had the seller fully understand what it was I intended to do. He sign a 27 question and answer sheet that covers everything we intended to do and had it reviewed by his lawyer and notarized. So there no question, my seller does understand what he did.

The only thing I’m running into at this point is the Bank hasn’t transfer the payment statement to the new owner yet.

Kinda wish I hadn’t posted this LOL. Hope many of you investors aren’t hammering the distress seller the way you hammered me without all the information.

Thanks again MMNC

Re: “Sub2” - Posted by alex

Posted by alex on May 27, 2006 at 11:56:13:


I’ve done many of these and never ran into this sitution before. I know that I didn’t go into great detail as to the agreement the original owner and I had, but I don’t feel your remark “Its people like you” was called for. I truely have the sellers interest in mine when I do my deals. You don’t see anywhere where I mention I was going to leave the original owner out on limb now did you? With that comment I’ll have to assume you never done assignments? If you feel you don’t have something to offer constructive, I’d kindly ask you keep your opinion to yourself.


Re: “Sub2” - Posted by Tom(MI)

Posted by Tom(MI) on May 29, 2006 at 15:18:44:

If he sold on a wrap he would have a lien he can foreclose on to get ownership of the house.

Sounds to me he just deeded the house over to the other party.

Your answer was in my post - Posted by Rob Ricker

Posted by Rob Ricker on May 28, 2006 at 01:21:53:

“With a Lease Option or Land Contract you can evict the non-payer if you need to and collect $25,000 AGAIN from another buyer”.

Let me explain it more …

You can’t evict and gain ownership again if you already deeded the property away via Sub2. When you sell “subject to” you have lost all control of the deal, but when you sell via Lease Option or Land Contract YOU still have the deed and control.

THE DIFFERENCE? About $25,000 dollars and a saved reputation as a legitimate R/E investor.

Re: Your answer was in my post - Posted by Jack KY

Posted by Jack KY on May 28, 2006 at 12:04:49:

You can’t evict with a land contract in my state. You must foreclose.


Re: Your answer was in my post - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 28, 2006 at 08:50:10:


I agree with LO or LC. I was specifically asking about a wrap or AITD. I don’t see the difference there.