Need advice on Subject 2

I have a very motivated seller who is desperate to get out. I think I can take subject to with no payment to seller whatsoever. I thnk there is about 20K in equity in the place. My question is… if I take subject to, Seller transfers title to me, but that will violate the due on sale clause right? How do you get around this? Do you not record the deed? Do you let the mortgagee know what you are up to?


Where’s mtnwizard? He’ll explain how to use a land trust to do this and not violate the DOSC. Also, you do need to make sure the mortgage is current and there are no other liens on the property. You also didn’t say what your exit strategy is? What are you going to do with it? $20k may not be enough equity with rehab costs, transaction costs, and holding costs.

Wouldnt you violate the due on sale clause upon the initial transfer of the Property into the land trust? Also, the place is currently leased with a -100 / month cash flow… so i am not too worried about carrying costs. I just need to fiugre out how to get around the DOSC. It does not need to be rehabbed.

Thanks for your input.

I believe in Florida, if you take title in a trust, the bank won’t know who the beneficiary is. I would record the deed.

-100/mo cash flow? No wonder your seller is eager to get out. That probably doesn’t even include maintenance costs and a vaccancy allowance. Are taxes and insurance included in that -100/mo?

There’s definitely other people here that can explain a land trust better than me. I’m sure one of them will show up.

I will definately find out what the -100 includes. I was thinking it may be worth it to carrry for a few months and try to flip. Maybe I will go for an option instead.

Whoa! Stop! Misinformation is flying around this topic. Let’s start from the beginning. Miamidirtlaw is right – if the seller transfers title to her, it’s a DOSC violation. Marcus gave her good advice. But, she is then wrong when she asks if placing it into a land trust is a violation. Land trusts are exempt from the DOSC if the owner remains a beneficiary and the trust itself does not refer to a transfer of occupancy (which they do not).

NEVER accept a negative cash flow. You don’t have to once your property is in a land trust. Now you can bargain with your tenant and get much higher rents by exchanging the right to writeoff mtg int and prop taxes, and sharing future appreciation. Land trusts aren’t simple, but they are effective. Think outside the box and good luck.

Da Wiz

One more thing, no matter how you take title, ALWAYS record the deed to protect your interests.

you do not get around the DOSC

You record the deed. Preferably in a corporate or LLC business structure. You can use a land Trust. I know of at least one JCL student that does use land Trusts in Florida, even though Cash doesn’t seem to need them him self. But in Florida, there is a structure that seems to be set up especially for this. Seems to have a lot to do with Floridas favorable asset protection rules.

But about the DOSC. I want you to go to the Register of deeds office and notice how many Bank Loan examiners there are from each bank that has a loan on a house in that county are waiting for someone to try and record the deed to a property that they have security to. They stand there all day long just waiting for some poor unsuspecting investor to come along and just try to pull a fast one over them. NOT!

Now why would they look at the register of deeds to check on a property? To see if someone who is late did sell or, even to see if they took out a second lien like a HELOC. I have had a mortgage on my house before that had a DOSC type clause if I took out a HELOC, or other loan. I took it out anyways. They are not going to investigate every property they have. To much costly manpower, even with them online in many counties. But they might if the payment becomes severely late.

Now, what if they do Call the loan due? CAll Gary and he will put it into a trust for you real fast, or at least set you up with Bill Gatten. Just in jest Gary, that would probably be too late of course.

But seriously. Any purchase you make has to be prudent and have an exit strategy. Is there enough equity in the house to refinance? Is your credit good enough to assume the mortgage? All things considered I doubt banks will call due a loan that is not late, but if they do, chances are they are going to want to have you or your entity become liable for the loan, or maybe even your buyer, as you and they now have an equitable interest. The longer you have possession the better your or your buyer’s chances to do this. It is not the end of the world.

Make sure your buyer has awareness of the underlying mortgage and the existence of the DOSC, and it’s implications.

The worst that can happen?

You give the deed back to the seller, so he can try to rent it out. You make some money, you paid the mortgage for a few months and gave your seller some breathing room that they needed, your buyer needs a new house to buy and if you are out there doing this all of the time, you probably have a house or will soon have a house for them to move into.

This is not fraud. Fraud assumes a lie to a directly proposed question. You are, nor is your seller, nor anyone else, required to tell the bank up front that they are doing a SUB2 purchase. In any case it is only a right of the bank to call it do, not a legal obligation on there part. No federal mandate that requires a Bank to call the loan Due (YET, just wait until the do gooders in D.C. try to fix things that aren’t broken)

Read Bill Bronchicks Article “There is no Due on Sale Jail”

Assuming you cover your bases, don’t buy with negative equity or sell with negative cash flow you should come out okay. Unless of course you are in the insane parts of the country when it comes to appreciation rates, but even then always buy right.