Fri, Jul 03, 2009
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Seller Wants To Do A Land Contract On A Subject-2 Deal, I Need Advice! |
thelemur
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Posted: 09:48 on 06-27-2008
I am negotiating a deal to buy multiple rental properties from another investor. In the tax records they took title in a trust which uses the previous sellers name, but they control the trustee and have beneficial interest in the trust.
They are offering nearly full owner financing, and my suspicion was that they took title this way in order to buy the property subject-to. Now that we've negotiated our terms on the seller financing, they state that they want to sell the properties to me on a contract for deed or land installment contract in order to keep the subject-to mortgage intact. I know about subject-2, but I am not very familiar with contracts for deed or land installment contracts.
What risks do I run in taking the properties in this manner? I am putting money down and taking the existing tenants as the properties are all rented.
Thanks!
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JohnLocke
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Posted: 10:21 on 06-27-2008
thelemur,
Your first step is to find out whose name the underlying mortgage is in, this will tell you if you are being assigned a Subject To deal. Never take a property this way without a Title Report showing all liens and encumbrances.
Your risk is if you are not dealing with the original owner and may not have all the facts on how the original deal was structured.
At this period in time there are many investors looking to "bail out" because of current market conditions, just make sure you are not the fall person and get stuck with a "bucket" in your hand.
John $Cash$ Locke
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thelemur
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Posted: 10:40 on 06-27-2008
John,
Thanks for the info. I'd feel confident assuming that the financing is still in the original buyers name, not the investor. The investor took control of the property in the trust to avoid the DOS clause.
I would certainly do a title search prior to completing the deal, but I guess if I don't have title I wouldn't be able to obtain title insurance.
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JohnLocke
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Posted: 12:01 on 06-27-2008
thelemur,
The idea behind a Subject To deal is that the investor has the deed, otherwise liens or encumbrances could attach to the property being sold to you under a Contract for Deed or Land Contract. I do not see your receiving title insurance on these properties the way it is laid out.
Here is something you should read about Trusts in NC, I have no way of knowing whose method of trust was used, however should things go wrong, you will be in the middle of it.
http://www.thecreativeinvestor.com/modules.php?name=Articles&file=article&articleid=623
John $Cash$ Locke
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thelemur
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Posted: 12:10 on 06-27-2008
John,
Thanks, I actually read your link earlier this year and it was very informative.
I just informed the agent and seller that this transaction involves too much risk and it is not worth my while. They want a 3 year balloon on this financing and if I don't have the deed I imagine I'd have to jump through hoops to sell it before the contract is fulfilled. I'm tempted to publish the name of this national real estate investment franchise that neglected to provide the fine details until after two weeks of negotiations, but I think that you can guess for yourself who it is from what I've written.
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On 2008-06-27 12:01, JohnLocke wrote:
thelemur,
The idea behind a Subject To deal is that the investor has the deed, otherwise liens or encumbrances could attach to the property being sold to you under a Contract for Deed or Land Contract. I do not see your receiving title insurance on these properties the way it is laid out.
Here is something you should read about Trusts in NC, I have no way of knowing whose method of trust was used, however should things go wrong, you will be in the middle of it.
<!-- BBCode auto-link start --><a href='http://www.thecreativeinvestor.com/modules.php?name=Articles&file=article&articleid=623'>http://www.thecreativeinvestor.com/modules.php?name=Articles&file=article&articleid=623</a><!-- BBCode auto-link end -->
John $Cash$ Locke
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NewKidInTown3
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Posted: 14:14 on 06-28-2008
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I'm tempted to publish the name of this national real estate investment franchise that neglected to provide the fine details until after two weeks of negotiations, but I think that you can guess for yourself who it is from what I've written. |
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thelemur,
For the rest of us who are not quite as smart as John, and have no clue to the identity of the seller, would you please share?
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John Locke,.
The investor purchased the property Subject To and is selling on Contract for Deed. With the exception of taking title in a trust, this is exactly what you teach.
Why should thelemur, as the buyer at the end of this chain, have concerns? Is it because he is in NC or is it something else?
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thelemur
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Posted: 14:34 on 06-28-2008
PM me if you'd like, although I might be out of PM's. The key word is franchise.
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On 2008-06-28 14:14, NewKidInTown3 wrote:
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I'm tempted to publish the name of this national real estate investment franchise that neglected to provide the fine details until after two weeks of negotiations, but I think that you can guess for yourself who it is from what I've written. |
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thelemur,
For the rest of us who are not quite as smart as John, and have no clue to the identity of the seller, would you please share?
--------------------------
John Locke,.
The investor purchased the property Subject To and is selling on Contract for Deed. With the exception of taking title in a trust, this is exactly what you teach.
Why should thelemur, as the buyer at the end of this chain, have concerns? Is it because he is in NC or is it something else?
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JohnLocke
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Posted: 15:55 on 06-28-2008
New Kid,
He would not receive the Deed to the property the way I see the deal being structured, when I sell I hold the deed until the Buyer fulfills the terms of our agreement.
Almost like having the Deed to a HOME an VESTING it to someone else with out giving them the Deed and if anyone does not pick up on this one then PM me and I will type slower.
Only kidding!!! New Kid is one of my favorite posters here at TCI, always excellent advice given to help and I am sure he got the message..
John $Cash$ Locke
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thelemur
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Posted: 16:05 on 06-28-2008
I'm confused as to how the two situations differ. They sound pretty similar to me, can you clarify? I need that slower typing 
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JohnLocke
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Posted: 16:54 on 06-28-2008
thelemur,
Will the deed to the property be in your name or some Trustee whom you know nothing about?
Also, if anything were to go wrong, are you the one going to explain what happened to the Attorney Generals office?
Why are they selling to you on a Contract for Deed if the properties are in a Trust? They must be going to dissolve the Trust take title in another name and then sell to you on Contract for Deed or they would have made you a beneficiary of the trust.
You see the list goes on, I buy from a seller, put the deed in my companies name and sell on a Contract for Deed (period). I do not purchase deals from other investors when they have used the Sub To method, trust method, etc. and took title in their name or a trustees name.
John $Cash$ Locke
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thelemur
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Posted: 17:03 on 06-28-2008
It seems that your method is a lot more straightforward. In their deal the deed would probably still be with their trust/trustee (of whom I know nothing about). As far as explanations to the AG, that I couldn't say, but it's certainly not worth the risk for the reward in this particular deal.
I asked about having the beneficial interest assigned to me, and they said "Because the closing attorney (name removed) & the title companies he uses fell most comfortable doing it as a contract for deed since he has to guarantee & stand behind the transaction."
I thought that answer was unacceptable. "because the closing attorney doesn't want to" is a joke.
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On 2008-06-28 16:54, JohnLocke wrote:
thelemur,
Will the deed to the property be in your name or some Trustee whom you know nothing about?
Also, if anything were to go wrong, are you the one going to explain what happened to the Attorney Generals office?
Why are they selling to you on a Contract for Deed if the properties are in a Trust? They must be going to dissolve the Trust take title in another name and then sell to you on Contract for Deed or they would have made you a beneficiary of the trust.
You see the list goes on, I buy from a seller, put the deed in my companies name and sell on a Contract for Deed (period). I do not purchase deals from other investors when they have used the Sub To method, trust method, etc. and took title in their name or a trustees name.
John $Cash$ Locke
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thelemur
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Posted: 17:04 on 06-28-2008
To anyone who has PM'd me, I've hit my maximum PM's and can't check the messages.
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JohnLocke
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Posted: 17:59 on 06-28-2008
thelemur,
There are plenty of Sub To deals in Charlotte, that you as an investor put together yourself without having to go to an outside source. This way you know all the facts and some attorney does not tell you what the client told him to tell you.
The attorney I use in NC to handle my deals understands Sub To deals and has no problem with them. He does a great job going over the paperwork with my sellers and never has had any problems closing my deals when the time comes for my buyer to re-finance.
From what I read, you want to invest, but most likely are looking for a short cut, meaning have the deal already put together for you by someone else. Surely this is a way to wind up with problems.
How many times have you read about a tenant/buyer in the property who stops paying as soon as an investors takes over, meaning you did not have the say whether they were acceptable to you.
Been on these boards for many years and have read the horror stories from posters dealing with the middleman, on several occasions was requested to help posters get their money back or straighten out the deal.
John $Cash$ Locke
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thelemur
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Posted: 18:08 on 06-28-2008
John,
I certainly am not looking to take short cuts. That's a pretty big assumption. A local agent presented me with some cash flowing rental properties that were listed as offering owner financing so I decided to pursue it as it appeared to be an attractive deal at first glance.
I'm beginning my own marketing campaign as we speak and I now intend to pick up Sub To deals for rentals to hold, owner financing deals for rentals to hold, and rehabs to wholesale.
Unfortunately, I don't know the In's and Out's of a proper/legal/ethical way to resell Sub To deals to another buyer. It appears that you may have a method but I don't know the details well enough to be able to explain to sellers/buyers what's taking place.
Also, if you are deeding your Sub To deals directly into your company name, how are you addressing (or not addressing) that with the lender?
[ Edited by thelemur on Date 06/28/2008 ]
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JohnLocke
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Posted: 18:38 on 06-28-2008
thelemur,
I have had lenders call me and asked for my help, when they have someone they feel needs a break. The last one was from Countrywide, where they had a young single mother that one of their agents was acquainted with.
Your are referring to the Due on Sale clause and in my 500+ deals I have never had a loan called. I do not make it a point to call the lender, I just make the payments on time, this seems to pacify them. Right now their plates are so full with foreclosures, I am pretty sure they do not need to heap on houses that the payments are being made on.
Do not take what I said as a slam against you, it is just someone calls you says they have rental properties only they hold the deed and not the mortgage, but kind of let this slide over until you investigate. I was just trying to make a point, that you need to know when to hold them and when to fold them. Or what the correct questions are, to save you time and energy from chasing after deals and this goes for everyone in the creative real estate investing industry.
One of my favorites: "Training gives knowledge, knowledge gives confidence and confidence gives victory"
John $Cash$ Locke
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