BEAT the HEAT with COOL CASH! How to get started with Subject-To Transactions
Posted on July 28, 2014 by Don DeRosa
This is one of my favorite ways to buy!!! I do several of these a year.
It’s HOT, HOT, HOT out there, and if you’ve been sitting on the sidelines, wondering if real estate investing is for you, now is a great time to dive in! Today, let’s focus on one of my favorite investment techniques: “subject to” mortgages.
Most of you know that when you buy a house, you usually receive a warranty deed, which gives ownership of a piece of property. If you’re paying all cash for a property, you just exchange the cash for the warranty deed. Pretty easy most everyone knows that.
But if you don’t have all the cash, you have to borrow the money. Most of you know how the typical mortgage loan works: your banker says, “Sure, just sign this promissory note that says you’ll pay it all back.” In return, you get a security instrument that says if you don’t pay the promissory note, the bank gets the property. In most states, that security instrument is the mortgage (In Georgia, we use security deeds). That mortgage, when it’s recorded, creates a lien on the property. In other words, the bank puts everyone on public notice that if the owner sells or transfers the property, the bank has to be paid off first.
A “subject-to” transaction is a little different. When you buy a house this way, you’ll take over payments on their mortgage. You’ll bring the house up to date on the mortgage and any back taxes and then continue to make mortgage payments, subject to the existing financing. The seller gives you a warranty deed, which conveys ownership to you. That means you get the tax benefits and the profits, but you also get the repairs and costs.
Here is the most important thing you don’t get, though: liability for the loan. Your name isn’t on the mortgage. Of course, if you don’t make the payments, your banker is going to exercise the default clause in the mortgage. In other words, he’s going to say, “You’ve defaulted so we’re going to foreclose and grab that house right out from under you.”
(Obviously, if you can’t afford the payments, you shouldn’t be buying that property.)
But what about that “due on sale” clause you’ve heard about? Most mortgages and security deeds now have this clause, which says that if the borrower – our homeowner – sells the house, the bank is allowed to call the loan. In other words, the banker can tell the seller he’s got to pay the entire amount of the loan – right now!
Luckily, in almost all cases, the bank could care less who owns the house as long as they’re getting paid. After all, Mr. Banker is swimming in foreclosed houses. He’d rather have the money! And that’s why subject-to transactions work.
Whatever your situation, new or experienced, this is one of my favorite ways to buy houses. I’d like to invite you to my full day, seminar – Making a Fortune Buying Houses with No Money and No Credit! You will learn…
What you need to know about Subject to ~~ The legal aspects of the deal
~~ Finding sellers ~~ Negotiation ~~ Constructing and presenting offers
~~ Finding private lenders ~~Exit strategies
BEAT the HEAT with COOL CASH!
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