subj to and refinance - Posted by Brent_va

Posted by JohnBoy on July 12, 2001 at 16:02:52:

Yes and No.

If the seller later filed BK, could the lender foreclose? Sure, but so???

First of all, if the payments are being made then it will be unlikely that the lender would foreclose. That would get pretty costly for them to take a perfectly good performing loan and screw it all up just to foreclose because the borrower filed BK. It doesn’t mean they won’t, but it doesn’t mean they will either.

If the seller was to file BK you could try to get them to not file against the lender since you will be making the payments on the loan anyway. I think this is more of wishful thinking though than reality. Since the seller no longer owns the property they would be a fool not to list the lender and have that debt discharged in the BK if they’re going to file one. Even if you were to get the seller to go along with this their BK attorney would strongly advise against it, unless their attorney is a real idiot!

Next it would be up to the lender as to what they will do when push comes to shove. What if they call the loan and you tell them to get lost and you will only continue to make the payments every month. If they try to foreclose you will stop making the payments and they will end up with a bad loan on their books, tie up $800k of their money to be lended out to other borrowers for every $100k of their money that is tied up in this loan, have to wait for 9 - 12 months or longer before getting the property back through a foreclosure, then have to pay a realtor commission to list it and resell it for them, risk taking a major loss on their money depending on how bad of condition they get the property back, and all for what??? Because they didn’t like the idea that the payments were being made on time every month by someone else other than the original borrower that filed BK???

You claim you would rather refinance the property now to avoid the lender from being able to foreclose on the property because on what may happen or what the seller may do later?

Since refinancing isn’t an issue for you since you feel getting qualified isn’t a problem, then why worry about any of this now? Understand something here, the lender may elect to call the loan due, and you may refuse to pay them off right now, just because they proceed with the foreclosure process doesn’t mean you automatically lose the property! They still have to go through the process and you can still pay them off at anytime before the sheriff’s sale, which could be 9 - 12 months down the road depending on the state you live in pertaining to their foreclosure laws.

If you could qualify to refinance the property now, then couldn’t you still qualify 6 months, a year, or 5 years from now??? You’re the one in control here that has all the options to choose from, not the lender. THe lender has two options. Let it go and take the payments every month or screw up a perfectly good performing loan and cost themselves a whole sack full of money just to show off their power in being able to get the property back so they can reloan that money again! They would probably never make up for the loss they end up taking if they did that! So it would be better to just leave the thing alone as long as the payments are still being made on time every month!

Assuming the lender was to exercise their authority to show how stupid they can be, you have the option of refinancing to pay them off at that time, or you can put the property on the market and sell it out right, or you can try to get your tenant/buyer financed at that time. You have options to deal with this if it were to even become an issue! So why rush into refinancing now and taking loans out in your name when you don’t have to??? Why limit your borrowing power by taking out unnecessary loans and exposing yourself to more liability???

As far as the seller filing a BK is concerned, the lender is the least of your worries…especially if you’re getting the property with a lot of equity. If the seller files BK the court could rescind the sale and take the property back so they can have it sold and use the equity to pay towards the seller’s debts owed to his creditors. I think its up to a year that the court could go back and rescind the sale on property from the date the debtor files BK. It could be longer in some states since there are state BK laws in addition to federal BK laws.

The more equity you get in a property the higher the risk you have of the BK court rescinding the sale depending on how much time has passed from the sale date and the debtor’s filing date for the BK.

As far as the lender is concerned, since getting financed isn’t much of an issue for you, and since you could always sell the property, or maybe get your tenant/buyer financed to buy the property, then worrying about the lender is the least of anything to worry about!

subj to and refinance - Posted by Brent_va

Posted by Brent_va on July 11, 2001 at 17:59:26:

I have a quick question for ayone that can help. If you bought a house “subj to” and got the deed could you refinance the house with a defferent creditor. If you could, could you do this with pre-forecloses as well.
Thank you

Re: subj to and refinance - Posted by JohnBoy

Posted by JohnBoy on July 11, 2001 at 20:25:38:

Yes. The lender may require some seasoning with you owning the property for 6 - 12 months. Why would you want to refinance it if you can take it over subject to?

Is the interest rate high on the loan you would be taking over?

Will you be gaining a lot of equity in the property to justify taking out a new loan in your name?

Re: subj to and refinance - Posted by Brent_va

Posted by Brent_va on July 11, 2001 at 21:41:19:

I was thinking about pre-foreclosures that are in my area. There are three houses that are in very nice neirghborhoods that are pre-foreclosures right now. They houses have allot of equity in them and I was wondering if you could take them over subj to and then refinance them and pay off the arrears(not sure if that will work or not).

Re: subj to and refinance - Posted by JohnBoy

Posted by JohnBoy on July 11, 2001 at 22:14:10:

Yes, this would work. I’ve done this exact same thing myself. The only thing you will need to do is find a lender that doesn’t have a problem with title seasoning.

Will the lenders foreclosing reinstate the loans if you were to bring the payments current? Some lenders will even put part or all of the arrears on the back end of the loan to avoid a long foreclosure process. You could take the property over subject to and just reinstate the loans without having to get new loans in your name.

If you don’t have the cash to reinstate the loans then find out exactly how much it would take on each mortgage to reinstate and see if that would be enough to get as a down payment from your buyers. Use their down payment money to bring the loans current.

Re: subj to and refinance - Posted by Jay_TN

Posted by Jay_TN on July 12, 2001 at 09:29:52:

I have a question about title seasoning. Let’s say I bought a house subject-to and held the house for 1 year. Then, I wish to refinance the home. Is this considered proper title seasoning?

In other words, I want to buy long-term rentals. I buy ‘subject-to’ to minimize my cash investment. Then, 1 year later I refinance at appraised value, and will have zero cash invested. Is the fact you have a deed sufficient for title seasoning, or must you have the mortgage in your name?

Sorry. I’m an experienced investor, but “creative” investing is a totally new prospect.


Re: subj to and refinance - Posted by Steve-Atl

Posted by Steve-Atl on July 12, 2001 at 14:10:47:

Phil is right. Refinancing to pull cash out will cost you. If the underlying loan is a decent rate…why refinance?

The way to get your cash investment back is in option fees, down payments on CFD’s, and monthly cash flow. If you wanted more out, maybe you could get a second, but I would not refinance a decent underlying loan unless I absoultely had to do it.

Re: subj to and refinance - Posted by phil fernandez

Posted by phil fernandez on July 12, 2001 at 11:06:54:

As JohnBoy says leave the existing loan in place. Your closing costs when you take the property subject to the existing loan would be minimal. If you refinanced you would have to pay points,pay for a new appraisal, credit checks, title insurance, title search and other legal fees. These might add up to $5,000 or so. In my opinion, you have just wasted $5,000 to refinance.

Re: subj to and refinance - Posted by JohnBoy

Posted by JohnBoy on July 12, 2001 at 09:55:37:

The fact you have title in your name is what matters.

Just because tou refinance doesn’t mean you will end up with $0 invested. It will depend on the equity you have in the property. If it’s an investment property the most you may be able to refinance for and take any cash out will be 80% of appraised value. If you have less than 20% equity you wouldn’t get any cash back. You would only be refinancing the existing loan. Unless you were getting a much better interest rate and/or a lot of equity in the property, it wouldn’t be worth taking out a new loan in your name.

If you took over the property “subject to” you would already OWN it and would not need to refinance it unless you chose to or the lender found out about and elected to call the loan due and foreclose. Otherwise you should leave it with the existing loan in place and continue to pay on that until you resell it. Why take on unnecessary liability for a new loan in your name when you don’t have too?

Re: subj to and refinance - Posted by Jay_TN

Posted by Jay_TN on July 12, 2001 at 14:12:03:

Phil and John, thanks for the posts.

Regarding the refinance, since I always buy at below market value, there will be built-in equity. However, there are other loan origination costs I must consider.

Now, while I take over title in a subject-to deal, is there any recourse of the lender if the previous owner files for bankruptcy or has any other credit problems. Is the house in any danger of being foreclosed upon? Quite simply, I wouldn’t want to buy a house, invest my time and money on fix-up, only to have it erased by the previous owner’s bad finances. By refinancing and having the loan in my name or trust’s name, I place the onus upon myself.

Now, if I am totally wrong regarding the above, please say so. Again, I haven’t been studying this type of transaction long. If it is the fine instrument I believe it is, then I’ll be certain to invest some money in courses and educational material.

I have been buying all my rentals with conventional financing and 20% down.