Sub2/Owner Finance Question...

If I take a property sub2 and I want to sell to someone else on a Wrap, do the new owners make their payments to me and then I to the original lender.

How does that work. If they don’t make their payments, then I have to foreclose? I am in Texas


Howdy Catlett:

You are correct. I used to do a contract for deed that gave me faster possession of the property. Today that has all changed. There were drawbacks to the CFD as well.

In a wrap you are providing financing just like the bank. You are loaning your buyer the seller’s loan and the bank’s money as ell as some of your profit some time. The new deed of trust that you get from your buyer should spell out all the details of the existing financing as well as your agreement with the buyer. This agreement is actually in more detail in the note and can just be mentioned in the actual deed of trust that is recorded at the courthouse to protect your position.

In the deed of trust you will name a trustee to foreclose on the buyer if they become in default. That trustee is usually an attorney but it could be your aunt as long as they follow a few basic guidelines. Pay special attention to homestead laws here in Texas if you sell to owner occupants as they have to be given special notice that takes 30 days longer to foreclose.

Even if you foreclose and take back the property this will not give you possession. If they have not vacated you will need to file eviction in small claims or JP court and have them removed if necessary.

Hope this helps a bit.

If you set the deal up as owner financed, you can also sell that mortgage to an investor… even at the closing table. You have to take a small discount on the mortgage (usually 5-10%) of the balance, but if you would rather have the cash now it is worth it. Your end buyer would need to be approved by the note buyer and you would want to structure the note and deed of trust to be attractive to a note buyer.

Michele Robbins, CPA