Considering selling my home Subject to and have questions

General Real Estate Investing
21

Dee,

My opinion is based on the information you sent in your Private Message to me.

From this investors standpoint the positive points of a Subject To deal on your property are.

Your house is in a neighborhood that shows that the majority of houses are lived in by the owners and there are few rental properties, which shows it is maturing with pride in the neighborhood. This means that the current appreciation rate should continue, which is about 4% per year.

This means the investor can add the current appreciation rate when selling to the price of the property based on the length of time until his buyer is required to re-finance.

Your interest rate is fixed and had a low percentage rate, so the investor can add about 2 ½ points to the current rate for a passive monthly income on his part. Very good loan in the current market conditions where many loans are ARM’s or are 80/20’s.

Since those on the deed are willing to sign off I see no problems in transferring the deed to an investor.

The downside I see unless your investor has the correct paperwork and knowledge, is that your loan is an FHA. Which means that the DOSC (Due On Sale Clause) should the lender find out the property has been sold, in my opinion will be called due. This means that the loan will have to be paid in full. I understand that the majority of lenders have their plates full and are not out looking to call loans due, but the FHA loans are in a different category.

Overall the risk factor is low to medium on the part of a knowledgeable investor and your part.

What I am sensing by what you have related is that the investor did not build a enough trust when speaking with you. I am a big believer in my signature line “If people like you they’ll listen to you, but if they trust you they’ll do business with you.”

Your heartfelt questions to ask for help, shows that you need complete confidence in knowing what you are doing is the right thing and the investor is the right person to help. At the present time you are not convinced it is right for you, so go with your feelings as once you sign over the deed then you are no longer the owner of the property and are Subject To whatever the investor does with the property.

It does not mean that there are not other investors out there that can and will build that trust with you, where you feel comfortable with doing a Subject To deal.

John $Cash$ Locke

22

Thank you so much for taking the time to analyze this for me. In all honesty, I like the investor a lot, and everything he has told me has checked out. His references were great. He said he would welcome our input in qualifying someone as well. I have had my attorney review his paperwork, and if we do the deal, he has recommended just a few revisions.

I am concerned about the concept, though. If only I had a crystal ball that showed me where I would be in two years with this whole thing, it might be an easier decision!

23

Dee, why don’t you call the investor and tell him that you don’t feel comfortable handing over your deed, and ask if he and offer you an alternative.

24

Dee,

If you are not comfortable with selling Subject To, you have other options that have not been mentioned.

You have eliminated a lease option strategy and I am assuming that you are trying to go the FSBO route right now. I am also assuming that you really don’t have anything against a realtor assisted sale, you just don’t have enough equity in the property to afford the sales commission.

You may get more interest in your home if your marketing included allowing your buyer to assume your mortgage. With a qualifying assumption you get release of liability and the buyer gets the deed and takes over your mortgage at your current rate and loan terms. If you have a rate well below the current market rates, you may be able to get a quick sale. This technique should still work for you even if you use a real estate agent and list the property at a price that includes enough downpayment to cover the sales commission. The drawback is that the buyer must qualify to assume your loan under the same lending criteria as he would if trying to obtain a new loan. Another benefit to the buyer is the assumption fee is usually significantly lower than the loan costs of a new loan. Call your lender and ask for an assumption package.

A second option that has not been discussed:

You say that you found a house that you want to buy and don’t want to mess with double payments, but, you don’t say that you can’t afford to. If you can afford the double payments for a couple of months, consider keeping your house as a rental after you move into the new house. Collect enough rent to cover your expenses and give you a little positive cash flow each month. Maybe your tenant will want to buy the house and can qualify for traditional financing. In that case, just sell it at your convenience at the prevailing market price if you still want to sell.

25

Those are good suggestions, Dave. I will consider them all. The most interesting one to me is that our current mortgage is a qualifying assumable mortgage. I knew that, but you mentioned that it would release us of liability. I thought it was similar to a sub2 in that we would be liable if the new buyer didn’t pay. I thought the original buyer’s name never came off the note in a qualifying assumable. If it does, that is huge because we have a fantastic fixed rate.

26

Dee, it may or may not come off initially. Usually, that’s up to the lender and it also depends greatly on the buyer’s current credit situation. Even if you do need to remain on the loan, it’s still a more secure option than a straight sub2 because the buyer also has the same liability as you at that point. Also, you will rarely have to remain on the loan for more than 1-2 years, assuming good payment history. At that point, you can request to be removed and usually it’s granted.

Raj