Sub2 with a twist?

I may not have all of the pertinent details but I know that there are investors in NoFL doing the following:

Seller offers home for sale. Let’s assume it appraises for exactly the asking price.

Buyer, who has credit just good enough to get 80% financing, puts 10% down and gets a mortgage for 80% LTV through a traditional lender.

Seller makes the deal possible by taking back a 10% 2nd.

Here’s the twist. Rather than merely taking a subordinate position with the 2nd, the seller, after closing, actually has the buyer deed the property back to him as collateral for the 2nd mortgage (sort of a contract for deed).

Once the 2nd is repaid, buyer gets the deed back. If the buyer defaults on the second, seller owns the house (he has the deed) and the cycle starts all over again.

Sort of a sub2deal with a twist.

Issues, questions, ??? Thoughts???


Glad to meet you.

So you are saying the lenders are going for this when the seller discloses this type of transaction on the HUD1 as required by law?

John $Cash$ Locke


Thanks for the reply. I think (operative word) this is being done after the closing and I don’t think it is being disclosed on the HUD1 as it is not part of the closing. Like you, I know, make that, am fairly certain that the lender would never go for this if it was disclosed and/or done at the closing. I intend to inquire more fully today and should have more solid info on exactly what and how this is taking place.

My understanding is is that this is a secondary event after the closing and doesn’t pass the smell test IMHO.

Keith in JAX

p.s. For what it’s worth…I bought your book (and audio cd) quite a while ago and while I haven’t taken any properties sub2 yet, that is my goal for the balance of the year. I have purchased a couple of investment properties the conventional way. I have done quite a few mailings but haven’t had any takers yet.


Yes, check it out, because what some folks call creative the Attorney General’s are now calling Fraud.

It is when you get an unhappy buyer or seller who files a complaint with the authorities the problems start. If these kind of deals where structured from the beginning of negotiations (which they most certainly where and the unhappy buyer or seller is going to point this out) and a complaint is filed then it is Mortgage Fraud.

It is so easy to make money using creative investing methods and legal when done properly, why take the chance of becoming another statistic on the police blotter. This great industry has come under fire more and more recently, because what some call creative other call fraud.

Use your head and caution when someone tells you it passes the smell test, cause Bubba doesn’t really smell that good should someone do it an it turns out to be illegal.

John $Cash$ Locke

I would check it out VERY carefully before trying anything like that.

I don’t know of any state where that would NOT violate the fraudulent, predatory, and/or usury laws.

The 1st lender would never agree if the terms were FULLY disclosed up front, as required (Fraud).

“The only way to get into the property is by doing it THIS way” (Predatory)

“The interest rate on our 2nd is only 15%,…Oh, and the deed to your property” (Usury)

I know. Just for kicks, why don’t you call up your state’s AG office and say, “I was told by so and so investor this is how they do their deals, is that legal?”

Hey $Cash$, I guess there is creative, and then there is “creative.”



Can you just imagine what the first investor they catch doing this will be in for, because they always need someone to make an example of for others to see.

As an example since with are both in North Carolina they should ask Brenda how much she has spent in attorney fees for just using a land trust and she is still going back and forth with the Attorney Generals office.

I really don’t want to see a new person hurt because someone tells them “of course lying on the HUD1 is legal I do it all the time.”

Live and learn, sometimes the hard way.

John $Cash$ Locke

If people put the same efforts into REI the “right” way that they put into trying to “beat the system”, they’d still be wealthy and not have to keep looking over their shoulders.

Like said above, once you “get it”, this business lets us make superb $ and have loads of time to enjoy it as well. Why screw it up by being shady?