I was wondering what would happen if I have bought a house Subject 2 and placed tenant/buyers in the house on a 2 year lease option…then 9 months after they have been occupying the house, the bank calls the loan due. Lets say my personal circumstance won’t let me refinance another house, and the deal isn’t rich enough to cover it with a private lender.
So lets say the bank forecloses and there is still a year and 3 month option to the tenant/buyers…I would have to kick them out and break their contract and they could sue me right?
I want to do these deals, but I’m not yet in a financial position to cover risks like this. Any suggestions?
We always make sure our tenant/buyers know the risks of the deal. Otherwise, its fraud.
You should have the tenant sign an affidavit that proves they understand the risk.
A lease/option is a terrible way to sell. Tenant/buyers don’t have money. Otherwise, they would just get FHA loans. Tenant/buyers don’t act like owners either, and they expect us to make repairs. We’re sell with a Note and Deed of Trust with a normal down payment. This eliminates the renter mentality. If our buyer gave us 10% down, and proves a payment history, he can refinance very easily. This doesn’t happen with lease/options. Very few tenant/buyers exercise their option. For us, lease/options are the poor-mans owner financing.
We also take title in a trust, and sell the trust, and the bank never knows the difference. Also, we make sure the loan is paid on time. Banks don’t call our loans due. If they did, we would deed the property back to the seller, and then lien the property to protect our equity position. Hasn’t happened yet.
If the loan is current, and the house is occupied and being maintained, banks don’t call loans due, even if there is a change in title. However, if there was a change in title, and the loan defaults, and/or worse the house is not being maintained, the bank will call the loan due.
Deeding the property back to the original borrower is probably the last resort. I would rather rooter my sinus cavity with a rusty butterfly bit than give up the deed. Never mind a house with no equity is not attractive to a lender. So, if a bank called a loan on a high LTV situation, ‘something’ else is going wrong, and it’s not a title change.
Banks call loans due. They do. But we don’t buy houses that banks will call loans due on, or give the bank a reason to call the loans due.
People who don’t know what they’re doing, buy ‘bad’ sub2 deals, and get their loans called due, because they bought ‘bad’ sub2 deals.
These would be the same deals where the new sub2 investor/owner kept making late payments, and the bank got curious, and discovered that the original borrower, Joe Blow, was no longer living in the house, and instead some new guy, was selling the house on a lease/option, recorded a memorandum, wasn’t making the payments on time, and bzzzz, wrong answer!
Somebody’s gonna have to refinance, and/or never mind that now, Joe Blow’s credit rating now looks worse than the butt on a 3-dollar hooker.
We don’t buy ‘iffy’ deals sub2, and worse, make the payments late.
Otherwise, we just stick a sign in the yard that says,
“Kick us! Cuz we’re
just the worst sub2
investors ever!”