Is this possible

Hello all,

I have been away from this forum for so long that I had to create another username. I was trying to get into investing 6 years ago or so and never made anything happen. A lot has changed with my situation and the market. Anyways I have a scenario/question.

I know someone who has a house that they lived in and then moved out and let their kid live there. He paid the mortgage and took care of the place while the father worked over the road. The son now has a family and needed a bigger place so he purchased his own house. The dad decided to rent it out. Two months into it he already has a dead beat tenant (10 days past due rent). Now he is already fed up with landlording. A few months ago I showed a little interest in the property for a rental. It is a 2bed 1 bath on a large lot. He said payoff is under 50,000 and would be willing to give it to me for what he owes because it is holding him up from buying a new home
Finally my question is: What is the possibility of working out a deal where he could quit claim me to the deed and refinance? Is this still possible? He has a FHA loan and it is un-assumable. I know a years ago it was possible but I was not sure if lenders will allow that. Any advice would be appreciated.

REGONZ1 :anon

Hi,

Yes, create a contract and open escrow with a title / escrow company! You can try to take sub 2 or wrap it to let buyer convey deed. The reason I say "Use Escrow" is you will need equitable title to refinance the property. (Title Insurance)

You will need to have 6 months to 12 months seasoning before you can do a conventional refinance. Check with local lenders to see how many months are required for seasoning? (Depending on loan type.)

                GR

Thanks GR. now I know this guy has a FHA loan is that going to cause either of us grief with doing an escrow?

Hi,

No, as long as you refinance as soon as you can (6 to 12 months) and the payments are paid you will be fine!

Make sure you set up a escrow service account and have the mortgage payment, insurance and taxes paid by the service account for the next 6 to 12 months until you refinance.

             GR

I am assuming by this post that you are unable to get conventional financing yourself. Conventional financing would make this a very simple transaction. Conventional financing requires a minimum funding of $50k. This would allow a $50k purchase price with some seller financing to help you out and he walks away with what he owed.

If you are going to go the QC route, make sure that you do a title check to make sure that he is the only name on the title and that there are no other liens or problems. A quit claim deed only transfers that one person’s interest (without warranty). If there is another “silent” party then you will only one that person’s equity interest.

Thanks for all the replies! I am going to talk to a mortgage broker to get a good idea on what is needed from me to qualify for a refi on an investment property.

Ok so I talked to a person at the title company and they said an escrow wasn’t possible because it would be opening up a second deed of trust? Does this seem Right? My other thought was if the seller did a quit claim to me would his mortgage come due? Or could we set up an agreement where I deposit money into an account that the mortgage is automatically withdrawn from? Any advice would be appreciated.

Regonz1

Hi,

Call another title / escrow company as you are looking to wrap / take over the property sub 2. If the seller just quit claims the property to you, you will not have equitable title required by a conventional lender to refinance the property as you will need title insurance chain and recorded title supporting it. Seller is Conveying title as is to you and you need it to have title insurance and be recorded and your keeping the underlying financing until you refinance.

You will need to own and season this property 6 to 12 months before it will meet seasoning requirements for a refinance!

Campbell it is not that he can not necessarily qualify for conventional financing as it is that he would need 20% down plus closing cost’s to outright purchase today, while he is being offered the property for what the guy owes on it today and the seller does not mind conveying title and letting him refinance 6 to 12 months from now.

You need seller to agree to a 24 month WRAP / SUB 2 note agreement so you have plenty of time to get your refinance done.

                    GR

The seller can get a new loan without you refinancing his old loan. He just needs a copy of the deed to prove that he doesn’t own the property any more.

You also don’t need title insurance to buy. This will save you and the seller some money.

Check the title yourself. Go online and look for anything recorded since the last title policy was issued. If it’s clear, you’re set.

When it’s time to refinance, that’s when you’ll get title insurance.

Meantime, why set a deadline for a refinance?

You’re doing the seller a favor, by giving him a cheap, fast, short-cut to getting new financing; today, not in six months; or after year; or when your alleged seasoning has occurred. He doesn’t understand the benefit he’s getting by deeding the house to you. So show him.

Plus you’re solving the seller’s negative cash flow, maintenance, management, and vacancy problems instantly.

So, forget the deadlines and/or balloons. If the loan is old enough, it’ll pay off before you know it anyway.

Again, the seller can get new financing immediately on another property just by proving the sale of his old property.

That’s my take, based on experience.

BTW, you should never agree to a balloon as short as two years, regardless. Too many things will go wrong.

If you have to, build in some meaningful extensions of time. Do that no matter how long the note goes. Just saying.

Hope that helps.

Thanks Javipa and GR for the advice. I will go talk to Alliance title about doing this when I have a day off during the business week. There is only two title companies in my county so hopefully Alliance can help me out.
As far as setting this up what kind of contract do I need to draw up? I’m assuming if the title company disburses funds then they will just send a check to the mortgage company every month. I’m green at this and have never dealt with a deal like this before so if I could get a step by step that would be helpful :help.

Thanks again

I appreciate all the advice given here. It’s really a case-to-case scenario; some will agree while others disagree. This has been a great opportunity, use it and take advantage of the lessons you learned. Back on the topic, it’s no secret that it just needs a copy of proof that he owns nothing anymore. All legal documents would be asked with certain assessment and evaluation.