I wanted to know if anyone is doing this strategy and if so can they let me know what is the best contract to use to secure the deal? Better yet, can someone post the contract I should use? I have RE gurus emailing me to get on web seminars, etc, trying to sell me courses on Mortgage assignments for thousands of dollars when it sounds like a fairly simple strategy. They are vague on this part, they just say they use a special subject2 contract with options.
It sounds like something that works in this market and i want to start but don’t want to stumble or put my foot in my mouth when trying to convince a seller to agree to the terms in exchange for the deed.
For the luv of gawd do not do fall for this “Mortgage Assignment” fad. Traditional Sub2 deals are fine, but assigning a mortgage (transferring title from a seller to a buyer who cannot get a loan, and collecting a fee off the deal, and walking away, is the stupidest, most short-sighted strategy ever.
Imagine with me…(I’m sure the MA gurus have a quick, if not torturous answer for my objections)…
Say, we transfer title to a buyer who cannot, for a variety of reasons qualify for a new loan, and perhaps he puts up as little a 3% of the sale price as a “down payment” on an underwater property… Of course this is a recipe for default, if not severe credit damage to the seller, and an abject case for a lawsuit.
Consider a default on a loan by the original borrower… That borrower often squats in his home until the bank either pays him to leave, or the bank agrees to a short sale offer, or the bank modifies his payments, etc. Either way, the original borrower enjoys free rent (especially since the bank won’t even talk with him UNTIL he stops making payments.
Well, what in gawd’s name does a defaulted “Mortgage Assignment” buyer have to lose by sitting in that same house rent free? His credit isn’t on the line, and even when the bank forecloses, the foreclosure doesn’t show up on HIS credit …and he can’t be evicted until after a trustees sale, which might take a year or two…
So, what’s the downside for the MA buyer if he defaults and then sits in the house rent free for months? Losing a couple thousand in down payment money? Hey, the more he put up, the more incentive he has to be a squatter! After all, he’s saving many potential thousands of dollars living payment free regardless of what he paid up front.
Bottom line, the original borrower’s credit is getting screwed six ways from Sunday by the MA buyer. Nice.
By contrast, in a traditional “subject to” transaction, the buyers (us) stay with the transaction until our Sub2 end/user buyer refinances the loan(s), or bails on us. Either way, our Sub2 buyers DO NOT get the deed before paying us off first. At the same time, we protect the original Sub2 seller/borrower from loss and damage by making sure the loan payment is made regardless of what our end/user buyer is doing.
Frankly, we make more money when our Sub2 buyer bails on us, because we can resell the house for another down payment! This is a professional (and profitable) service we provide to the original Sub2 seller. We’ve built a back-end profit into the deal.
With a Mortgage Assignment, again, the person putting the seller and buyer together (us) walks away once the fees are collected, and the deal is consummated. That’s all fine and dandy as long as our buyer doesn’t default and/or get stupid by squatting in the property.
In this case, nobody is assisting the buyer in getting financing either. He’s on his own. Sellers rarely have the expertise to assist a buyer in getting financing. That’s why sellers rely on real estate agents most of the time to handle this detail. In this deal, we have no incentive to help any further. We’ve got ours!
Meanwhile, with a Mortgage Assignment, if the buyer either decides he’s tired of the property, or can’t get a loan (isn’t being assisted by anyone like us in getting a loan), and/or has a fight with the seller, and/or decides to screw the seller by not making any more payments …and finally, just to add insult to injury does NOT move out… what recourse does the seller have?
Well, the seller just evicts the Mortgage Assignment" buyer for not paying right? Uh, no. The MA buyer is the TITLE HOLDER. The only entity that has the right to evict a defaulted MA borrower/owner is the lender/lien holder …and that right only comes after a trustee sale. So the original borrower is up a creek without a paddle. The original borrower’s credit is being screwed AND he can’t evict the MA deadbeat from the house.
On the other hand, if we were still in the Sub2 deal, like we should have been, we would be protecting the seller from a Sub2 deadbeat buyer by NOT transferring or assigning the DEED to our buyer before he paid us off. Also, we reserved funds to keep the loan current until we got a new buyer in place.
The MA gurus are saying that escrowing a Grant Deed back to the seller is the insurance policy against a buyer’s default. That bogus, if not tenuous alternative, touted by the MA gurus, is ILLEGAL to perform in several states that require judicial foreclosures if ever, and whenever, there is a transfer of equitable interest.
This includes Contract For Deeds (in CA) as well. If we have a MA buyer who actually HAS the title in his name, there’s nothing short of a judicial foreclosure that will legally force the MA buyer to abandon the property despite being in default.
So, if we want to make money on pretty, low/no equity homes, we stay in the deals, and DO NOT transfer title to our credit challenged buyers, while at the same time protect the original seller from damage and loss.
Otherwise, we better make sure we do our MA deals behind a corporate entity; plan to be sued and hide our assets, because we WILL be sued by the seller who gets his credit trashed by our MA buyer who defaults, won’t pay, and …won’t move.
Mortgage Assignments are the dumbest strategy to hit the creative real estate market in recent history. Why not just shoot yourself in the mouth right now and save yourself the grief of doing 3 to 5 in Leavenworth after your seller gets a judgment against you for fraud.
Wait! You say? Is a mortgage assignment fraudulent? No.
However, explain to a judge how you didn’t take advantage of an unsophisticated seller by “talking” him into transferring his deed to a credit challenged buyer, and collecting a HUGE fee at the seller’s expense and ignorance, and later damaged his credit, inhibited his borrowing power, upended his reputation, and thwarted his earning ability. That’ll be interesting testimony.
I’m not 100% against MAs as Javipa is, I just do them under slightly different terms than these gurus are probably suggesting. First of all, I would put the end buyer in the home with an Agreeement for Deed, Contract for Deed, Wraparound Mortgage, or whatever state-specific document is applicable, as opposed to them just getting the deed sub2 at closing. This gives the seller a foreclosable instrument while still giving the buyer technical ownership (but NOT the deed). I have one of these under contract as we speak.
Secondly, I want the SELLER to ultimately approve the buyer and sign off on it in writing. This probably wouldn’t mean much in court but I can always point to it. Between this and giving the seller a foreclosable document I can make a pretty strong case that I acted in good faith.
Lastly, I’d absolutely put a 2 or 3 yr balloon in the end buyer’s note and I’d personally help the end buyer to get refinanced best I can within that timeframe…and if they bail or squat I’d help the seller get them out, and HOPEFULLY get to do it all over again and make another assignment fee. I wouldn’t get the initial assignment fee and say “see ya later” I’d help consummate the deal.
But on a broader note, I’d much rather prefer to stay in the deal as Javipa suggests. In addition to the reasons listed, you also have THREE potential profit centers if you stay in the deal as opposed to ONE if you just flip it… 1. front end deposit from end buyer 2. monthly cashflow spread btw payment collected from buyer and underlying pmt made to seller’s loan, and 3. back end spread when the buyer actually buys the house. Many new investors don’t have the money upfront to buy the deed from the seller. Simple solution: bring the buyer and seller to the same closing and do a double close. Buyer’s down payment will pay both sets of closing costs plus put the rest in your pocket…you buy the deed from the seller (with your buyer’s money), and sell the house to the end buyer on agreement for deed or whatever…all at the same closing table.
I'm not 100% against MAs as Javipa is, I just do them under slightly different terms than these gurus are probably suggesting. First of all, I would put the end buyer in the home with an Agreeement for Deed, Contract for Deed, Wraparound Mortgage, or whatever state-specific document is applicable, as opposed to them just getting the deed sub2 at closing.
This is not a Mortgage Assignment as you’ve described.
Mortgage Assignments are ONLY understood as transferring the deed from a seller to an end/user Buyer, subject to the existing financing, and walking away. Thus the term “assignment.”
On the other hand, you are describing what I’ve explained is the only safe way to flip low/no equity properties. That is, to stay in the deal, and hold the deed until the buyer performs. Period.
Profitable, safe, Sub2 transactions, are not at all what MA gurus are teaching. They are teaching the unsophisticated and unsuspecting how to coordinate the transfer of a seller’s deed to an end/user buyer, collect a fee, and walk.
That is a recipe for disaster and will likely result in all Sub2 transactions being outlawed, because of it’s abuse and misuse.
Meantime, let’s not confuse “Mortgage Assignments” with a “Subject To” financing. They’re not the same strategies. One is stupid. The other is profitable.
Actually what I’m referring to is indeed an assignment, meaning I’m technically out of the deal once it closes. I stay in the deal voluntarily only sorta as a consultant, helping the buyer get refinanced down the line and assisting the seller if the buyer defaults. But I’m not in the deal technically speaking…I’ve assigned my interest for a fee. But I’m not instructing the closing attorney to give the buyer the deed until they’ve paid off the seller. They’ll get a contract for deed.
For example, the deal I currently have under contract will be an assignment because there’s no other profit centers in it for me other than a front end down payment…however I’ll still voluntarily help the seller and buyer fulfull the transaction only because it’s the right thing to do IMO.
But I do see what you’re saying. I’d rather legally stay in the deal if I can (meaning I get the deed).
I look at it this simple way, its pass the buck to the end buyer while the seller waits and prays that the underlying mortgage is paid. You, in the middle have nothing to lose but the seller can have their credit killed.
@javipa You are 100% spot on about Mortgage Assignments. These are fraudulent transactions !
This is a disaster waiting to happen.
I cant believe the hype that some so called real estate gurus put together this crap to grab your hard earned money! What they fail to realize in their ignorance, is that they are putting the investor in danger of risk by perpetuating a fraud!
I understand people are looking to make a quick buck, and there is tons of these types of possible transactions that one could prey on people with to do so…
Anyone real estate guru promoting this method should be seen for what they are… money grubbing info - marketers who only promote a product to get your hard earned cash! They certainly don’t know real estate law!
The mechanics of the mortgage assignment aren’t fraudulent in and of themselves. It’s the people putting the deal together and walking away that is just the worst practice. Fraudulent operators don’t need an MA’s to be fraudulent. They’ll screw anybody with about any financing strategy.
If we want to make money putting motivated sellers and buyers together on a deal, why not just arrange for a Land Contract between the two? It’s just as simple, but much safer for the Seller. Meantime, the Buyer has the same benefits tax wise and otherwise, as he might with a full-on MA transaction.
What’s even better is, if we stay with the deal, by contract we can theoretically make money helping the Buyer both repair his credit and subsequently get a new loan …and (drum roll please) receive another fee, if the current buyer bails, and we resell the house again.