i’m in the midst of a good deal right now; he’s agreed to completely seller finance the condo i’m purchasing. the problem is he still has a mortgage on the property (a FHA mortgage no less). i was able to circumvent the problem via a “wrap” mortgage where there would be no transfer of title until the purchase price has been completely paid to the seller (hence the mortgage due on sale clause wouldn’t be applicable). i took the deal to my lawyer today and he said this is an extremely risky situation for me in the sense that the seller can still do whatever he wants with the property, and all i can do in this instance is try to sue him in court for breech of contract. at the same time, isn’t it little risk to me in the sense that i have no real investment in th property? he said he’d write it up for me but he recommended against it. my town is relatively small (70,000 people) but isn’t this type of financing pretty common in larger metropolitan areas?
prompt responses EXTREMELY appreciated as i have to call him shortly to talk about the terms of contract…
When was the FHA loan originated?
If taken out on or before 12.15.89, you can just assume the mortgage without the need to qualify (if written after 12.15.89, you could assume it if it was to be your primary residence with lender approval; private investors are prohibited from assuming FHA mortgages after 1989).
As to your legal question, I’d listen to the guy that you paid to know that stuff.
Regards,
Scott Miller
You don’t have an investment in the property now, but aren’t you going to make payments each month? Would it be okay for you lose those payments?
How long do you need the financing for? Is there any chance that he could deed you the property and you just leave the existing loan in place?
thanks for the great tips guys. the terms of the contract would be for 30 years with a 10 year balloon at a marginal interest rate of about 6.5%. he could theoretically deed the place to me; however their is a good likelihood once the bank found out they would call the loan due, in which case i would take out a mortgage for the remaining principal on the current mortgage.
i think i’ll take your guys’ advice and just try to do conventional financing; it just woulda been real nice to eliminate all those prepayments and closing costs.
:cool what about this have your seller sell you the place on a land contract ???AND then he can sell the note made in the sale for about 80 to90 % of face value pay off his current mortage and make a little on the deal and the due on sale just was taken out of the deal !! just a thought as it is something that goes on all the time
take it subject to, put it in a land trust, name the land trust after the property adress (that way it does not look fishy to the lender if they decided to peek in public records).
You can either pay the lender directly or the seller. With the market being the way it is today, there is absolutely no way that any lender is going to call a mortgage due if there asset (the note) is performing. That would make absolutley no sense as it would turn into a liabiltiy for them.
I am tired of hearing about the “due on sale” clause. I have personally purchase over 100 property via Subject to and have never had an issue. Has anyone ever had any issue with it? Put it to sleep… the lender is not going to call the note due as long as it is performing PERIOD!
PS if you are going to be making the payments directly to the lender after taking the property subect to… send a certified check or set up automatic payment online… never send personal checks (I am assuming that everyone most likely know this but you can never be to carefull)
If you are ‘wrapping’ original mortgage, you would have your trust deed filed in the land records so the owner can’t do what they want with the property. The big concern is that the orig monthy mortgage gets paid. Wraps can work.
Jeff
thx a ton for the great tips fellas. he’s starting to fall out of the seller financing mode…i made a special trip out there to sell it to him and it worked great at first until he had time to stew about and talk to his wife. i was unaware of the land trust and subsequent deed, but i will start researching it immediately. thx again…
Make the payments directly to the bank - not the seller!