I have been trying to educate myself in investing in foreclosures for some time now, but have yet to do my first deal. I received a call last night from someone who would like me to acquire their home subject to their existing mortgage. I am familiar with how the entire process works, however actually implementing it and coming up with the necessary forms are another story. (Not to mention a little scary considering the risks involved).
One thing that is still unclear to me from all of my research is whether the seller actually receives anything for their home (other than 1 or 2k for move out costs). Do they get their equity when the house is sold?
Also, do I need to have an attorney draft up the necessary documents or is there a standard “subject to” form that can be used. Earlier this morning I signed up for the short sale training packet from this website. However, time is of the essence…
You really need to develope a niche. Your kind of jumping around and it will be hard for you to get your first deal. You went from foreclosures, to subject 2, to shortsales... Just stick with one, become good at it, and move on to another.
The seller gets the amount you agree to upfront.
You don’t need attorney to draft the contracts, however that is always the best option, to ensure you have solid contracts.
Lamar, I’m not a guru, either, but I don’t agree with some of what you’re saying. Sub2 is a purchase strategy, not a niche. Also, it seems like you need to know something about shorts nowadays to get involved in preforeclosure investing, which is a niche.
As a side note: In terms of executing and negotiating shorts, I would outsource. I still work full-time, so I don’t have time to go back and forth with loss mitigators. I found a company that a fellow investor just used to negotiate a pretty nice payday, with no upfront fees. The company did the majority of the work and kept the homeowner informed of the short’s progress.
Not-a-guru, where are you located? Do you have a local real estate investor’s association? You might want to find an experienced investor there that can help you out with your sub2 deal, and even tell you if you have a deal at all (you didn’t post any numbers, so it’s hard to tell).
I guess it’s all about how you look at it bcinvest. We are really talking about the same thing here, in my opinion. Preforeclosure investing is just as much of a purchasing stategy as subject 2 investing is. Depending on the type of deal, you need to decide which strategy is best. With that said, you’ll have different types of sellers that respond to different strategies. In order for you to become an effective investor, you need to be come good at these strategies. It’s best to hit them 1 at a time. It’s called focusing on your niche market. Whether that be sellers who give up the deed, or sellers facing foreclosure. A niche is something something that you do and become good at doing it! Again, this is just my opinion, and whether you agree or disagree, you have every right to your own opinion and I respect that BCinvest!
Hi Not-a-guru!
Congratulations! You are far ahead of most foreclosure investors in that you have people calling you to take their property. It took me quite a few years before I was able to reach that point.
One thing most people will not tell you is that when you take a property Subject to, you violate the Due on Sale clause on the seller’s mortgage. that means the bank is free to call the loan whenever they want. This would probably not happen in this environment until the mortgage rates rise, at which time the banks will go after these situations, assuming the banks are still around at that time!
Seriously, there is one way to deal with this problem. That is to have the seller put the property into a land trust before you take the property. Leave him a 10% interest in the trust, but take a Power of Attorney so that you control his ineterest. Now you did not say, but if the seller is in foreclosure, you should get the property out of foreclosure before you take it. Many states are passing laws making it a crime to take a property in foreclosure which would include all or most of the sellers equity.
Get a signed agreement from the bank stating exactly what amount is neccessary to reinstate the loan and stating specifically that those funds will be used to pay the arrears and reinstate the mortgage. I know of a case where someone sent in $30,000 to countrywide to reinstate a mortgage and failed to get the understanding in writing. Countrywide applied the money to the principal owed and proceeded and foreclosed on the property!
Deposit the reinstatement funds in escrow along with the signed deed transfering the property to the land trust. Once the bank has received and acknowledged the funds reinstating the loan, proceed with the deal. This way, you did not get the property from someone who was in foreclosure.