Pre foreclosures--Subject To and Option Purchase

Foreclosures, Short Sales, Tax Foreclosures
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Hello everyone,
First let me say thanks to everyone for the great posts. I have learned a great deal over the past few weeks…

I am just starting out and have what hopefully will be a great lead source of pre-foreclosure deals. I am however a bit nervous and confused about a few things.

  1. If I get a seller to agree to a “Subject To:” or “Option Purchase”, how long do you normally give them to move out of the home so you can start showing it???

  2. Legally what is the difference between “Subject To:” and “Option Purchase”? My take is this…On a S2 you are being put on the Deed of Trust and taking over the payments which means you must have a closing with a title company??? On an OP you are simply signing an “Agreement” to purchase it at some predetermined date in the future and taking over the payments. Is this correct or am I completely off base here? Also which one is preferrable?

  3. If doing “Subject To:” is it better to put the deals into a Land Trust? FYI…My state is a Deed of Trust state. If so where can I find good information on how to setup a Land Trust?

  4. Do you get tax benefits on an Option Purchase or does the seller still retain this?

  5. How do you handle a situation in which you have signed up a seller either via Subject To or Purchase Option and then you cannot find a buyer within the originally agreed upon timeframe? Can you put in a clause that will allow you to return it back to the seller and if so can they cause legal issues for you in this situation?

  6. This goes along with #5… I have no real money to start out with so I am looking to flip these properties to retail buyers or other investors. Most of these homes will already have the Trustee Sale notice filed so there will be very limited time to close the deal. Can you get an extension on the sale if you can show that you are in the process of purchasing? Or better yet, what is a good exit strategy if you can’t meet the deadline?

Thanks so much for your help…

Shane :biggrin

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Man everyone must be busy tonight…I thought someone out there would know the answer to at least a couple of the questions.

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Ok here ya go

1… Move out time… I never close on a single family property until they vacate the property. If you close they could refuse to move out… good luck explaining the purchase method to a judge. TO many unknowns… get them out before or on the date of closing… have them sign some sort of Vacancy Doc that states they have vacated the property on such and such a date.

2… Sub to or Lease Option… You are pretty close to right on. Always deed the property into a land trust (I usually name the trust after the physical adress … IE 12 Brandt Island Rd Realty Trust). Subject to is preferable because you have control of the property… make sure you have the sellers sign over a POA, specific to the property, as well

  1. Land trusts are pretty involved and can get complicated. Buy a course on them and try to familiarize yourself with them.

  2. If you structured you deal correctly you should get the tax benefits. It is all determined in the wording in your lease contract. If you don’t have it… ADD it.

  3. LO… You required to fullfil the obligations on your contract. I have never heard of someone giving a property back (not where I from at least). The deal couldn;t be that good if you are willing to give it back.

  4. IF you can’t meet the deadline you are a fish out of water buddy.

Defiantley figure out your exit stradigy before you put it under contract. IF you are sellin to other investors you could always assign the contract with a lease otpion and get paid a fee. A good way to start if you have no cash.

THere are numerious other stadigies, learn the basics before you jump in over your head. Remeber you have to take baby step before you can run.

Learnin and Earnin

Mark

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Thanks for the input…I really appreciate it.