I was wondering how many people routinely take deed to a property subject-to the existing loan, and then turn right around and sell it to a buyer with seller financing, using an AITD/Wrap. It seems to me there is a LOT more risk involved doing this as the new owner could default, which could mean you would have to foreclose. What precautions do people take in case the original lender catches wind and decides to execute the DOS clause? How do you handle the inusrance issues involved with both the old lender and the new owner (I’m sure the new owner would have to get their own h/o insurance)? Thanks!
To avoid the concerns you have addressed, I take a property subject to, then place it in a land trust. The lender CANNOT invoke the DOSC.
To protect yourself agains the new owner defaulting, if your property is in a trust and you’ve made the new owner a beneficiary, he has no equitable interest in the property and by defaulting is relinquishing his beneficial interest. Foreclosure is never necessary, as it is a simple eviction.
You should convert to landlord insurance and make sure your tenant has renters insurance.
Good luck to you.
Da Wiz
gary,
he asked about an AITD, not a trust.
Tony,
You can do an AITD with a trust which may be seen as an effective legal shield for virtually ANY creative financing objective. It can be tantamount to a Long Term Lease (i.e., a lease for more than 3 years); a Lease Purchase, an All Inclusive Trust Deed, an Equity Share Arrangement, or a Land Contract (e.g., Contract for Sale, Contract for Deed, Contract for Warranty Deed, etc.). The Trust can meet the objectives and functions of any of these arrangements without the many risks associated with them.
Da Wiz
the DOSC being called is going to be a risk this way as with sub-to, but highly unlikely it will be called. yes the new owner can default on a wrap, and u’ll have to either offer them $100 cash to walk and relinquish the property in lieu of forecl, or u’ll have to foreclose in TX. but TX is non-judicial state so it’s fast moving process and not that expensive.
the insurance has to stay in the orig owner’s name, that is the easiest way to do it. otherwise u have to get ur own policy and name the orig owner as add’l insured. or u can convert it to a landlord policy if it’s convertable. some are not.
Thanks Tony. That makes sense.
BTW, did you hear about the Travis County Tax Assessor upping the property values by 20%+ next (or was it this) year? Looks like the days of undervalued properties in central Texas are slowly coming to an end. I’ll be anxious to see what tax assessors in surrounding counties decide to do.
well my property taxes do not need to be any higher here in Hutto, thank you ;D
Hello Tony DiCorpo,
This is a little off the current topic topic but has to do with Sub2.
I,m trying to get my Sub2 business up in the next week or so but I cannot find a good Loan Serviving Co and the last Title Companies I called today even told me Wraparound mortgages are illegal which is why most Title companies won’t do them. I appreciate any thoughts you can share!
Im not trying to contest your response, Im new at this and dont undersatnd the Insurance issues. Once a property is bought sub2 The investor is the new owner. How can you leave the insurance in the original owners name?? How can they Insure something they do not own??
when u buy sub to the loan stays in the orig owner’s name. so, becuz of that, the insurance must as well or the orig lender will not like that one bit.
That’s why you are much safer doing a sub 2 in a land trust. No need to hide anything. I immediately transferred the homeowners insurance on my house to landlord insurance AND notified the lender as to what I was doing. I’d much rather be safe than sorry.
gary, frankly i am tired of ur pushing this trust thing. this most often is ur typical response. u r confusing newbies to this board. pretty much every post u join in on turns out to be a freaking debate about the nars. i wish u to just go away already
Tony,
They do have a right to know there are options and what those options are, especially on an issue as important as this.
Da Wiz
Thanks for your response, I understand that the bank would have fits mabey call the loan etc. My questions is the house realy insured since the policy holder is no longer the owner??? Sorry for my apathy but I have only bought investment properties through traditional financing never creative means…
Unless the house has a ton of equity, the DOS is a non issue…contrary to some things being said here. Most of the DOS fear in these forums come from someone trying to shove the NARS trust down everyones throats. I would not pay any attention to the posts about the NARS because the person making them is just trying to drum up some business. Many are tired of reading the dribble every day. And it is happening in multiple forums. You can buy sub 2’s without a NARS and not have any more worries, as long as you do your due dilligence. Don’t pay any attention to the DOS scare tactics being repeated here. In a typical low equity sub 2 deal, it is a non issue.
Newguybob,
Don’t pay attention to those boobirds behind the curtain. The subject is insurance. Leave the existing insurance in place if it is landlord coverage: if not, convert to landlord coverage in the name of the borrower of record. Homeowners Insurance will not cover a non-resident after 30 days of vacation. Best of luck to you.
Da Wiz
Bobo - I don’t drum up business here, I just educate. My business is all by referrals. Thanks for your concern and have a great day.
GREAT POINT, the subject IS insurance. Maybe you should have considered this in a previous post where an insurance question somehow turned into another point on trusts. You could have given this answer when he first asked about it.
Does anyone have a Word or Adobe file for a Purchase and Sale with a Sub2 clause? I know I am changing the subject, but I was hoping to get an electronic verson of a P/S hopefully with a Sub2 clause.
Thanks,
Ryan
You don’t need a Sub2 clause per se - just add a line in the Purchase Price column saying “Subject to existing loans”. Bronchick’s “Flipping Properties” book has a good example.
Then maybe someone has just an electronic version of a p/s? I would really be very thankfull if someone could email me a Word Doc P/S.
Ryan