Had a question on subject 2 that hopefully someone can answer (maybe Javipa)…I have researched the subject 2 deals and went over my business plans with my attorney (who is also a real estate investor) and called the title/closing company to discuss doing closings on subject 2 deals (maybe this is where I made my mistake)…I was advised by the attorney not to get into doing the subject 2 deals…He was very familiar with how to do them but said that it could end in legal disaster either for me or if the bank decided to call the loan due (due-on-sale-clause)…He said if I started doing these sure I could make money but if something happened and the property had to foreclose due to the acceleration clause then it could ruin my reputation as a real estate investor…In talking with the title company (who has done numerous closings on my other real estate deals) he said that it may put the title company in a liability situation if something happened and the property had to foreclose for whatever reason…The title agent said that nobody does deals like this in our area and he would be reluctant to do a closing on something like this…My attorney (who also has a closing company within his office) also stated the same. What are your thoughts on this and have you had this obstacle before when you started?
OK, I’ll bite.
Nutshell:
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Attorney is a moron with no practical experience with Sub2 despite his ‘familiarity’ with it. Get an attorney who can tell you ‘how’ to do Sub2’s, not why you shouldn’t.
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Forget the title company. Check the title chain yourself for defects; if none; record your deed. Use title company when selling, not buying.
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Any title company can issue a policy on a Sub2 deal. It’s just that they will carve out the existing financing on the policy and insure the rest of the deed.
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The title companies that won’t process/close/insure Sub2 deals, are the same ones that are too incompetent to figure out their head from a hole in the wall …but not because ‘nobody does them.’
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Find another title company, or just don’t use one when buying.
P.S. Your attorney thinks you’re a moron.
Ok…the reason I asked for you to post is that you have experience in these kinds of deals…not sure what “ok, I’ll bite” means…it wasn’t a call for a debate or argument, just wanted your opinion…You bring up some good suggestions, thanks for those…and I am also not sure how to take your last comment that my attorney thinks I am a moron…I don’t know why you would say that (I am actually an educated and intelligent individual) but whatever;
Sorry, that was my horrible attempt at being ‘hilarious.’ :anon
Just take what I wrote for face value and assume I wasn’t attempting to insult you.
Please accept my apology for bad form. :anon
Whoops, about the attorney.
I wasn’t trying to say YOU were a moron. I was saying that the attorney assumes you are, and that’s partly why he only offered cya advice, such as ‘don’t do Sub2 deals.’ He assumes you would screw up a Sub2 deal and all hell would break loose.
The fact of the matter is that the attorney you spoke to IS a moron for telling you he 'knows all about Sub2’s", but obviously does not have actual, practical experience with Sub2 transactions. Otherwise, he wouldn’t be giving you the overly conservative advice. Just saying.
FWIW
thanks for clarification and input…no offense taken on your comedic skills :biggrin
On my last Subject-to this is what I did. Have your attorney prepare the new deed and the rest of the paper work. Have your seller sign it and close the deal. Do not perfect your interest by recording the new deed instead just have your attorney hold all the paperwork in escrow. Record instead an affidavit stating you have an interest in this property but does not specify the details of it.
By not recording the new deed, as far as everyone is concerned the seller is still the owner of record. When I did this, I was planning to rent the house but a buyer showed up and offered to buy the property using FHA financing. And since I did not record the new deed, title went through without a hitch and I just sent an invoice to the title company (my profit) which went on the seller’s side of the HUD-1. Of course this may not happen to you but if it does you’re good to go.
Now call the insurance and have them add you as a loss payee on the insurance. And you’re done.
Lastly, stop using the words subject-to to attorneys, title companies, etc…this is lingo for fellow investors. When I spoke to my attorney all I said is that I am taking over this person debt payments. I need you to create a contract, a new deed, etc…When I spoke the my title company all I said I need to order title work on this property. That’s it and I paid them for it. Stop using these words which really just for our own (us investors) ego and edification and to look more sophisticated.
That’s really a great option when we can’t/don’t record a naked deed.
:beer
YEAH, what Javipa said!!!
your FIRST mistake was talking to a attorney. they are the gatekeepers for the banks…thats how THEY make money, protecting the banks…
And another thing. This due on sale clause fear I always hear about…what bank would ever do that? They don’t want houses back. The due on sale is not a law it is not a requirement it is an option. The bank has the option to accelerate the loan and call it due. They know that they won’t get the loan money if they do that. They are going to get the house. They don’t want the house because they have too many houses already. As long as you keep making the payments the bank is going to let you. You can expect a ferocious letter from the bank trying to scare you but as long as you make every payment on time you won’t hear another peep out of them.
I have never heard of a bank accelerating on a loan when payments were being made on time.
Any lawyer that does not know that is making his money doing wills and representing criminals in court. You need a real estate investor grade lawyer.
Warning. If you use joolkano’s suggestion be forewarned that if the seller is shaky by not having him off title on the records you can have judgements and other liens being attached to the property and a much bigger mess to clear up. So consider other methods. I still like land trusts to do some of this stuff. You can have the owner put the property into a trust and record it so nothing is attaching during your deal.