Hi - I have spent a lot of time lurking on this site and I have learned more than I ever thought so thank you all very much!
I know a “friend of a friend” who seems to be very successful and I learned he offers payments to folks who are facing foreclosure and he assumes their mortgages. Apparently he has a network of people who refer him to the homeowners and he then negotiates with the homeowner.
It seems like a win/win because the homeowner walks away with some money in what must seem like a dire situation and this guy assumes the mortgage and can rent out the property. Obviously there is a lot of homework to do on the properties to see if the numbers make sense, but my question is does anyone have experience doing this and anything you can share would be really helpful.
I have been a student of real estate for two years now learning the market in my area and I am finally ready to get off the sideline and acquire some property.
Issue: Whomever is telling you that they are ‘assuming mortgages’ probably doesn’t understand what exactly is going on. There’s no such thing as ‘assumable’ mortgages.’ Plus there’s no point in doing that. After the bank qualifies you, you might as well take out a new loan, because the rate and terms on the old loan won’t survive an assumption in today’s market. Again, what would be the point?
Most likely, your friend of a friend, is taking over the payments on defaulted loans that he’s bringing current. Or perhaps doing ‘that,’ and getting the deed in the process. That would be called “taking title, subject to a defaulted loan,” or a “subject to” financing transaction.
Issue: If you want to be successful doing the same thing, then you’re gonna need to study this guy, and find out what he knows.
Chances are, he’s doing a LOT more than what meets the eye, and the learning curve, if not the investment of operating capital will be steep.
One of my competitors, whom I taught, just spent about $15k finding, closing on, and flipping a $420K first loan that was three payments behind, on a house worth $525.
He agreed to bring the payments current, and give the seller a $40k second for his equity. He sold it on an installment loan to a new buyer with a $45k down payment for $550k (or 8% down). He asked for 10%. Oh, well.
After all was said and done, he netted $81K in equity profits, less back payments, recording/notary fees, and marketing costs of <$14.5k>. The remaining $36K in equity profits is due in 36/mos.
In this case, he cured the default, gave the seller a note for some of his equity, resold a little above retail, and netted $66,500 in equity profits.
For me, I like to find the deals that aren’t behind, and make more. But you do the deals that come your way.
Meantime,
Issue: Finding enough not-upside-down sellers in default, who also aren’t eternally optimistic that a unicorn with cash will show up to bail them out.
Issue: Qualifying the deals in such a way, that you’ll know who’s loans to stay away from, and which ones won’t call their loans due a month after you record your deed.
Issue: How to stay out of jail, like the guy in Texas who re-defaulted on a bunch of loans he cured.
Issue: Knowing how to pitch and close on a ‘subject to’ transaction without having to convince the seller that you will make his payments, if he hands you his deed, and walks away with nothing.
And the issues go on. You need some “sub2” training. That’s just all there is to it. Ask the friend of the friend’s friend, where he got his training to do these deals. Go buy it.
Thanks for the feedback. I knew when I wrote the post I would get comments on the fact he is a “friend of a friend”, it sounds like the start of a Dear Penthouse letter. I do not know him well enough to ask personal questions but I am going to see what else I can find out.
I have since learned he has 3-5 people who refer potential homeowners to him. He is definitely not some “guru” but he does own a successful landscaping business so I guess he is in contact with a lot of different people.
Again - thanks for the info it was much appreciated.
i beg to differ on above statement. when you sign the right notes you then assume the loan with out using the bank or your credit. i am working on a program at this time that does show you how to do this. you are assuming the loan as you are then assigned the responsibility of it. this method should only be done with desperate sellers and only when the equity is in your comfort zone.
‘sign the right notes you then assume the loan without using the bank or your credit’
I beg to differ …Sorry, but you just broke my Bull-Shiite meter. “Assume means ‘assume,’ as in the bank acknowledges a substitute borrower, who then becomes legally liable for repayment of a loan.”
Sorry that doesn’t happen in today’s market, without showing your financials, income tax statements, proof of income, and the rest of the horseradish that the bank’s must review, in order to approve an ‘assumption.’ Never mind, the interest rate adjustment to current rates, and possible term readjustment. There’s no reason to formally assume a residential loan today. Commercial loans …maybe.
It’s not like 1970, when FHA offered non-qualifying assumable loans, which a donkey could theoretically assume, and became ersatz ‘sub2’ transactions, before there was a name for them. That is, even FHA non-qualifying assumable loans, left the original borrower on the hook, during a two or three year seasoning period, after the formal assumption took place, during which time, the payment history of the assuming borrower showed up on the original borrower’s credit report. So much for the word “fully assumable.”
Speaking of donkeys…
Please stop polluting the definition of “assumption” with your “right notes” junk.