Bought property sub2 two years ago, took title, now seller wants new mortgage and, unfortunately, is using the same bank (BOA) she used before. I sent loan officer a letter explaining that we’re “managing” the property and the payments are covered in full (and paid directly, they’ve always been on time) by my company. I sent a copy of the lease (but not option) I have with my tenant-buyer. Loan officer is calling me, says since it’s an FHA loan, she needs a copy of lease or mgmt agreement I have with my seller, but all I have is a deed and some CYAs, which would blow my cover and may open up DOS issues. Any ideas for dealing with this and helping my seller get financed?
I am no expert at deceiving a lender. I suggest you come clean.
I suppose the bank could call the loan due, and you may have to refinance or formally assume the loan if you want to keep the property. They may just do nothing.
Tell your seller to go through another lender. they might find one with better terms.
I suspect it is the FHA underwriting guidelines that is in play here. Regardless of the lender, bottomfeeder may still have this problem if his seller insists on using an FHA loan.
I agree, attempting to deceive a lender is dangerous, especially one with FHA.
Look at the logic though: Without getting into a discussion with the seller’s new loan officer about your sub-2 deal with the seller, can’t you and the seller create a real bonafide lease that covers the use of the premises, the right to sublet, and the right to market the property?
Honestly, you should find out what SPECIFICALLY the loan officer wants and then get a copy of another one they might have from another loan they closed.
There may be a way to create legitimate paperwork that will survive scrutiny.
Avoid doing anything illegal that would involve creating fake documents.
Consult a title agent or attorney in your REIA group (because the inexperienced idiots out there will tell you discouraging nonsense like you can’t do it) and find out how to do it legally.
Without knowing your local market and legal environment, I wouldn’t want to mislead you.
Keep it up!
Looking back over this post, you might want to put the property into a land trust. I am wondering how you transferred title and insurance without the lender knowing about the transfer.
The property has been sold. Title has transferred. Kind of impossible to “create a bonafide lease” between the seller and the buyer without “creating fake documents”. When you do this to deceive the seller’s lender, then you are conspiring to commit loan fraud – and that’s illegal.
DaveT is right on with his answer, the horse has already left the gate (title transferred) and anything other than going to the seller and having a heart to heart on why they will have to find a different lender will get an investor it serious trouble.
Trying to concoct a lease even with an attorney involved at this juncture is just plain loan fraud and why it was even brought up…never mind it should not have been.
John $Cash$ Locke
Update, months later…(sorry) My seller got her new loan, through BOA, the same bank her old loan is from, the one I’m paying on from when I bought her home subject to. After I explained to the BOA broker again that I was “managing” and “in charge” of the property, and reminded her payments have always been current on the loan, she accepted my explanation without need for further proof, and made the loan to my sub2 seller. This result can’t be guaranteed, of course, but it proved to me once again that sub2 is a great strategy, and in these troubled times, could well be saving banks hassle and expense.
I strongly suspect that the problem was the loan the seller wanted and not the bank. You said that the seller had applied for an FHA loan. I am guessing that a lot of the resistance from the bank stems from a HUD regulation that only allows a borrower to have one FHA loan at a time.
Rather than try to make the borrower qualify for an exception (which can be granted on a case by case basis), the bank probably steered your seller toward a conventional loan product and away from an FHA loan.
The bank would have required title work for the loan to be completed. How did your seller explain to the LO or UW why the title was not in his/her name?
This seems strange to me. Also, why was your seller getting a new loan? To save you money? I thought once they sold subject 2 they were out of the picture? Now you have another 30 year loan to pay on instead of whatever was left on your amortization?
CHRIS
WOW you are so correct the sub-2 seller has done the sub-2 buyer no big favor
By locking them in to a new 30 yr loan BUT HEY THE SELLER LOOKS SUPER AS LONG AS THE BUYER PAYS !!
What a guy :banghead
From the way I was reading this, the seller wanted a loan on a new property they wanted to purchase, not the one they sold Subject To.
Otherwise they would not have been able to re-finance the property held Subject To as the title would not be in the sellers name. It also looks like the bank accepted the Lease/Option agreement as proof the seller was not making the FHA loan payments so it counted towards their debt to ratio income.
John $Cash$ Locke
Mr. Locke is correct, of course. I’ve learned a lot from him, and I’ll be he’s helped more people with subject to deals than anyone else on the web!
Gotcha. Now I get it.
I thought when they said “new loan” they meant that they were refinancing the current mortgage.
So I am confused. Your seller/lessee wanted a loan to buy another house?
so you own a house that you do have title nor the mortgage deed of trust in your name and can rent/lease again to some one else?
So if you get the money to purchase out right, would you need to find the old seller to process the paperwork in the near future?
Invambina,
Glad to meet you.
The seller sells you their house Subject To the existing loan staying in place. However, the deed to the property goes in your name making you the legal owner of the property. You can sell the property as you now own it without contacting the seller.
In the case in this thread the seller who sold their house Subject To wanted to purchase another property, however they could not get another FHA loan as there Subject To house already was purchased this way, so they purchased the new property using a conventional loan.
John $Cash$ Locke