FOR Subject-to Legality Skeptics.
This is copied directly out of my online realtor course I am taking(yes I have no idea why they go into this much detail for being a realtor:
ASSUMPTIONS VERSUS SUBJECT-TO MORTGAGES
Assumption of mortgage—When a buyer purchases a property and assumes the loan, the buyer becomes primarily liable for the debt. If the buyer defaults on the loan, the lender will look to the buyer first. However, the seller is still on the original note, so the lender can look to the seller if the buyer does not pay the loan. If the buyer released the seller when the loan was assumed, then only the buyer is liable.
Subject-to mortgage—When a buyer purchases a property subject to an existing loan, the buyer acknowledges the existence of the debt but takes no personal liability for the loan. Even though the buyer continues making loan payments, the seller remains personally liable for the loan. If the buyer stops making payments, the lender may hold the seller liable for the remaining balance.
My conclusion is that as long as you make it clear that the seller is STILL LIABLE for the mortgage if something were to happen, then there is absolutely nothing wrong with this method.
That is good info...Is there any link to that info you can post?
Something we can print out, possible as a reference?
Not that I'm a skeptic about subject to investing because I know several investors that use the subject to method to acquire properties.But, my Florida Real Estate Principles,Practices & Law (25th edition) manual states on Pages 248 line 19 the following: If the existing mortgage does not have a due-on-sale clause, a second method of acquiring mortgaged property is to buy subject to the mortgage, where both the existing mortgage and note remain the obligation of the seller. I guess the state just hasn't figured out that the DOS clause is an option for the lender and really has no meaning when it comes to acquiring property subject to with or without the clause.[ Edited by bpteos on Date 11/16/2003 ]
"I guess the state just hasn't figured out that the DOS clause is an option for the lender and really has no meaning when it comes to acquiring property subject to with or without the clause"..
It is NOT an option of the seller uness the mtg does have a DOS clause, and its language specifically gives lender the right to call/accelerate if the seller sells or conveys the RE...which many (most?) pvt mtgs don't have, not having a DOS clause of any kind.
With the "sale or conveyance" language, it wouldn't matter HOW the seller sold, either with or without assumption, as either could be legal cause for DOS if it were written in that way.
But every pvt mtg should be read, because some do have DOS clauses...if I were drafting one, for myself as a lender, it would normally have an all-encompassing DOS.!
In a(n) _____ mortgage, the buyer of a property acknowledges an existing debt on the property but takes no personal liability for it.
[ ] assumption of
[ ] subject-to
This is also a question that popped up on one of my tests. Basically it's saying the reason subject-to isn't illegal is because the lender still holds the original borrower liable. If anything, subject to would be a benefit to the lender, because you have twice the chance of getting your loan paid back.
Chase
The DOS clause is a way for the bank to call the loan due if they want to. I don't think it has anything to do with Codes and Laws.
I think it's the Banks own internal Law...
I noticed that the standard california RE sales purchase contract has a subject to option. So, hence, not illegal (won't go to jail nor pay any fines to any government).
Right now, 2003 in Nevada (which is one of the top 15 states where Federal loan fraud & IRS problems are rampant) their county recorders office has enacted (in 16 counties) the following:
"If the grantee is not the party receiving the property tax bill, grantee must provide a mailing address" THINK ABOUT THIS! I've been consulting with a real estate attorney and he tells me the BIG INSTITUTIONAL LENDERS (Fed. institution) such as Wamu are enforcing the due on sale. The "sweeping changes" which began June 2003 are being made across the nation. BEWARE! The IRS and the FEDS. are working with lenders on this NOW. I personally believe if you're going to hold the property for just 60 days (flip) you MIGHT be OK. Consider this, who would tell the lender you acquired the property "subject to"??? Try your disgruntled employee, ex-wife, litigation investigation, etc...
It's your choice to take a property subject to the existing mortgages or not...
I have personally done it and it works. The banks have threatened forclosure but both can't seem to get approval to call a performing asset due. They know my intention is to flip the property too so maybe they would have a problem if I were to rent it or such.
Talk to John Locke....he wrote the book on it..literally! He's done somewhere in the 100's if I recall with no problem. I've heard of no one on here getting their note called but it is your choice.
DBentson,
Glad to meet you.
Tell your attorney to call me I can straighten him out.
You are totally confused with loan fraud and subject to, if you are going to post you need a better understanding how to effectively do Subject To deals or what they are all about.
Third post great scare tactic however, it won't work on me or anyone who understands how to get the job done.
John $Cash$ Locke
it is against the law in michigan to evade a due on sale clause and anyone who gets caught will be SUBJECT TO fines, and suspension of any business license held in michigan. There is that better?[ Edited by abstractprone on Date 12/12/2003 ]
abstractprone,
What's your point?
I think you should make perfectly clear that the homeowner knows exactly what you and they are doing don't you? If it isn't what they really want you are in trouble, and if their loan is accelerated you can be liable for three times the damages they suffer because of it.
If your point of editing all my posts is to allow people to continue to think they are doing a legal thing so they will buy more junk from this site, then you are just as bad as sub2 predators themselves.
Seems free speach only applies to people who agree totally with you. Good day [ Edited by abstractprone on Date 12/12/2003 ]
AbstractProne:
you wrote---
Quote:"...evade a due on sale clause..."
Could you please give us the Case Law Statutes and Citings etc.?
Thanks,
Derrick
abstractprone,
Let me get this straight. The seller who took out the loan from the lender signed all the lenders closing documents and initialed every page stating they understood what is contained in those documents, including the DOS clause.
I did not sign any of these documents, or intial every page as the seller did, so if the seller does not inform me that there is a DOS clause in his paperwork I can sue him for three times the damages should the loan be called after the seller deeds me the property?
Remember I am not the one who signed.
John $Cash$ Locke
I am mistaken, that is the statute of frauds. This is the due on sale law and yes it does mean the loan balance if it is the damages.
I would post the url to the legislation but I am not allowed, so by your leave I will post the legislation itself. MCL445.1628
section 8
2) Any person licensed to do business in this state who, while carrying on that business, knowingly advises a person selling or transferring property not to notify a lender as required by section 3 or who knowingly otherwise aids or assists a person in evading the enforcement of a due-on-sale clause enforceable under this act shall be liable for a civil fine not to exceed $5,000.00 for each offense and shall be subject to revocation of his or her license.
(3) The attorney general, a prosecuting attorney, or any other person may bring an action for 1 or both of the following:
(a) A declaratory judgment that a method, act, or practice violates this act.
(b) An injunction to enjoin a lender, real estate broker, or real estate salesperson which is engaging or is about to engage in a method, act, or practice which violates or would violate this act.
(4) In addition to any other remedy provided by this act, a person who suffers loss as a result of a violation of this act may bring an action to recover actual damages or $250.00, whichever is greater, together with reasonable attorneys' fees.
In the original online study guide, there is a slight error:"If the buyer released the seller when the loan was assumed, then only the buyer is liable". Nope. Only the lender can release the seller from liability.
More importantly, the subject to purchase technique has been utilitzed for decades. The problem arises when the seller does not understand that they are not released from liabiltiy, that the debt will still show up on their credit report, and that the due-on-sale clause may be exercised by the lender.
For all legitimate subject to purchasers who pay the mtg on time with good funds, this is not a problem. The scoundrels who don't make the payments, skim the rent, imperial the lenders security, and trash the seller's credit history are the source of this problem........and the prosecution by the Attorney General's office and/or pursuit by the lender.
It's a simple matter of dealing honestly with the seller and paying the mortgage on time-rain or shine. Is that too much to ask?
abstactprone,
Now if you show where a private real estate investor or person selling there own property applies for a license this would help. Also what type of license is required.
---Any person """licensed""" to do business in this state who, while carrying on that business, knowingly advises a person selling or transferring property not to notify a lender as required by section 3 or who knowingly otherwise aids or assists a person in evading the enforcement of a due-on-sale clause enforceable under this act shall be liable for a civil fine not to exceed $5,000.00 for each offense and shall be subject to revocation of his or her license.
---
You are confusing licensed real estate agents with private parties.
In America a person has the right to buy and sell properties they own, without being licensed. Otherwise every FSBO would have to get a license, I don't think so.
John $Cash$ Locke
are you licensed to do anything? A home seller may be a person who holds a license to do ANY business in the state. There was a builder/developer who lost his license for this and was convicted of fraud.
abstractprone
Are you saying that I would lose my driver's license because that is the only license I have???
I have never heard of needing any other type of license to buy or sell my own house. (I need to drive to the property).
John (LV)
If you want the truth of the matter, I am not an investor, but a mark for a sub2 buyer. Until a week ago I didn't even know what a sub2 was. I found this place by putting subject to existing mortgage in a search engine. This guy trying to buy this house feeds us a big line of crap, runs off with our deed and tries to register it without even giving us written proof of a loan commitment to pay the first, which is right in the contract. So, to stop him, my partner quick put me on the deed and registered it first to stop the guy. We want to give him his money back and make him go away but not until he gives us that deed back. This is not what we wanted. We even extended him seller financing for the 50g equity with 0% interest. He gave us no documentation of any kind we could hold against the property, no proof of loan. Luckily for us his deed was not in form for our state. Now, we want the guy to take back his money and go away, but he is trying to sue us and force us to close. He is the one who got the deed from us under false pretenses, he is the one who broke the purchase agreement, and he filed suit right in the middle of negotiations. My P only signed the deal two weeks ago, and they guy is suing. Well, we aren't backing down. This guy had the whole thing set up to screw us and now he is trying to burn up our equity in attorney fees. Can you believe he even wanted us to pay rent and pay our own mortgage! what kind of crap is that. I called the mortgage company myself and got the payment lowered just yesterday. I had them do an escrow analysis and found we are paying 1200 too much per year, and we got on the good customer program and get an $82 refund every month we aren't late. We have only missed it once. This guy sucks and I hope he goes to jail again. He had that whole purchase agreement set up to fail and if it did, he had the deed to our home, and could have said oh well guess I will sell it and give you nothing since the deal is breached.
And the language he used seems that he was trained right here on this site. Hope you are all so proud of your creation. I do believe he may even be a user here but I wont publicly announce it. I know he is actually.
a business license gosh can you read
abstractprone,
Quote - "So, to stop him, my partner quick put me on the deed and registered it first to stop the guy."
So are you telling me that when your partner put you on the deed he violated the law in MI?
You said it I didn't.
John $Cash$ Locke
abstractprone,
The reason I posted my ridiculous response to your posts was to get your attention.
I recommend you not come in here with “Guns-A-Blazing” and attacking the whole investing community. I understand you have a problem and if you had presented it like a call for help, I’m sure the whole board would have turned out to help you.
There is a solution to everything.
John (LV)
no, he didn't. the mortgage company said it was ok if I am on it as long as he is on it. and further the law says an unrecorded deed is void against a subsequent deed if the subsequent deed is duly registered. We did it on the advice and recommendation of our attorney. The guy did not even have his deed correct. It failed about six requirements for filing, including margin size and other basics. The guy is a convicted fraud, and we almost got scammed. He probably thinks we don't have his money and that he can force us to sell to him but we do have it and it is held in trust by our attorney until this is settled. We weren't that desperate, just sick of this house and wanted to build a new one. He thinks he is quite clever, and that this lawsuit is oh so scary for us country hillbilly hicks, but our lawyers are mad and ready to eat him alive. I went down ta da ciddy ta git me one of dem dare lawya's
And I apologize if I came off as guns blazin but these past few weeks have been a nightmare. I am afraid to leave my house, afraid to go shopping because I am in the middle of a suit and don't know if I will be able to buy presents for my kids, and I cry all day I am so mad. I do apologize, I am frustrated. I am sure you are not all evil
It just seems a lot of you get a kick out of milking the seller for as much as you can get and it makes me mad when I see someone get hurt and others clapping them on the back for doing it.[ Edited by abstractprone on Date 12/12/2003 ]
and Mr. Locke, your hooded figure makes you look suspicious
abstractprone,
My confusion with your situation I think stems from partial information. It's obvious that you're angry and very passionate about the situation that you're in, and I don't think that I blame you for that. I'm honestly trying to understand your situation now so please bear with me.
#1) Am I right in the following? His pitch involved him taking the propert sub2 existing financing, and seller financing for an additional 50K.
If this is so, did he explain to you that he would be making sure that the payments on your loan would be made per the terms of your existing financing? It should also have been explained that the finance co., Bank, etc. could accelerate the loan per the DOS language included in the loan.
Were the terms of the seller financing specified? When he would be making payments, How much etc.
Those terms should have been explained in a purchase offer and acceptance form (Or whatever document would be appropriate for your area). This should have been signed by all parties involved. Was it?
If not, how did he get a deed signed by whomever was in a position to sign a deed?
Did he create a deed himself?
Lastly, Has this person failed to do something that they said they would do. (Like make the payment), or did the suspicion of something being wrong cause you to change your mind, and try to stop the transaction from taking place?
Like I said earlier, I'm just trying to understand.
Jeff
[ Edited by jeff12002 on Date 12/12/2003 ]
[ Edited by jeff12002 on Date 12/12/2003 ]
It sounds to me like you are in need of an attorney for this problem.
I am not one nor do I profess to be an expert in contract law, but I do know that if both parties agree to and sign documentation then both parties must live up to the agreement. I also know if items are exchanged ie money or deeds or anything else and they are spelled out in that paperwork, then the parties on both sides must adhere to what has been agreed to.
If you feel that he has breached his side of the contract, then it is better left for your attorney to handle this matter, even to the point of going to court. You attorney can handle the civil aspect of this situation and if he/she sees there was a crime committed, take it further to the proper authorities.
Best of luck
John (LV)
He never once told us what subject to meant and I learned it only by coming here. We kept asking the guy if he had gotten the payoff from our lender and why should we carry the homeowners insurance if we were only renting and why should we have to waive our escrow funds. He was just so slick and had an answer for everything. the contract itself is so ambiguous and contradictory that even our lawyers said it needed to be redone. To make matters worse he put a lis pendens on the property. What an ugly thing to have on your title. In one paragraph of this purchase agreement he said he was getting a new loan, in another he says subject to (he led us to believe it meant he knew there was a loan to pay off) In one paragraph he said at closing seller will convey title by general warranty deed and in another he said my p has to execute a quit claim deed. When my p hesistated about signing he lied about wanting a copy to show his lender, and now I find out that subject to buyers just want to get your deed. Plus, he never gave us the "security instrument for performance of the promissory note" and he even had the nerve to say the promissory note was ESTIMATED when we said the price was firm. He snuck in a bunch of stuff at the last minute, orally misrepresented the contract and basically is trying to steal the house for ten grand. this house and acres is worth well over 230000 undeveloped. We were being more than generous and the guy still got greedy. Develped it is worth way more. There is zoning for 7 splits in a growing area. I just cannot believe the nerve. Yes, we are going again to the lawyer next week, and I am calling the attorney general, and any other authority I can think of. I think I will call the local tv news too and get the corruption waste and fraud guy on his butt.
**to answer the person above yes, we figured out finally what he was trying to do when he said he wasn't going to tell our insurance agent he was buying the property. He knew we wanted to build and that it would involve a construction loan, we also said several times when we found out about the deed switch that we could not close until he obtained the payoff for our lender and show us financing, and he just looked at us like it didn't matter. We would not have ever signed anything like this if we knew it would not get rid of that mortgage. Plus he is convicted of fraud? He was charged with failure to pay money? How were we going to be sure he would give us the money due on the promissory note, especially with him hiding behind an LLC? [ Edited by abstractprone on Date 12/12/2003 ]
Everything you have just described... I have not read or purchased anything describing those tactics from this site.
What you are dealing with is called a criminal. I was taught and have heard many respones to what subject to is and EVERY SINGLE TIME I was told that the seller understands the mortgage is remaining in their name and I am taking over the payments. Every house I have taken subject to, the seller knows this and it is always discussed. I even have a disclaimer that gets signed letting the seller know the loan is staying in their name. If you believe the person you dealt with is one this site, rat em out. I would like to know who he is so I stay away from any advice he gives.
Do not throw us all into the same bucket because you dealt with a dishonest person. Sorry you are going through this but you are now learning a valuable experience.
I do believe he is brentvnd from michigan or if you would like i could give his real name and company name. Also, I guess I should thank you all because if it weren't for you I still would be clueless as to what subject to means. [ Edited by abstractprone on Date 12/12/2003 ]
abstractprone,
Looking at what you posted on the legislation, it appears to me to be directed at RE agents, loan brokers, etc. It states "Any person licensed to do business in this state who, while carrying on that business...subject to revocation of his or her license.
" Could this be the case?
Regards,
Ed
any person in any licensed profession like builders, agents, lawyers, mortgage brokers, even cosmetology if you do this. If you hold a license, if you know about it, and if you get caught.
So the law clearly states that if I hold a license to wash dogs, and if I give you advice about selling your house, I can lose my dog washing license?
[ Edited by nebulousd on Date 12/12/2003 ]
abstractprone,
First, I'm sorry that you are having to go through this. I truly hope this works out for you and quickly.
Try not to judge everyone by this one guys actions (he is completely wrong). There are many people on this site that are more than willing to help as long as its asked for and not attacked.
Keep an open mind, learn everything you can, it will help you fight this person.
Best of luck to you
It really is too bad that you're in this situation. There are laws, It's too bad that legislation doesn't prevent bad things from happening. Please consider for a moment that in your situation, it is the person that your dealing with that made this a bad situation, not Sub2 investing, or those of us that try to treat people fairly. It sounds like the laws will take care of this situation, and I wish you luck.
Jeff
"Evade" the DOS law?
That's not at all what LEGAL sub-to is all about...it IS about AVOIDING the DOS issue.
Just as Tax Avoidance is VERY legal, whereas tax evasion is a crime, so is DOS Avoidance very legal.
You may have found a statute but you've sure missed the point !
For Jeff on page 2. This guy kept saying his financing was already approved and never even mentioned the subject to clause on the second page. Plus there is a major subdivision that he is supposed to be in charge of on our back land. We were supposed to get a percentage of lots sold and then a balloon payment in six months plus our own five acres deeded back to us. After carefully picking the contract apart, we are going to get screwed. He verbally talked over the words written and led us to believe they meant diffferent things. I think we are going to be ok if i can afford a lawyer. He has put a lis pendens on our title, and is screaming breach and fraud. He is trying to force us to sell by burning up our equity on lawyers, in my opinion. We are going to call the fraud guy on tv and contact the attorney general to have his LLC dissolved. You can do that here I have been told. I just got the full report on the guy and he has been told not to ever apply for any business license in this state again because he lacks good moral character and an inability to serve the public in a fair open and honest manner. Too bad I didn't know that before... There is one paragraph that says he had to give us written proof of a loan commitment by yesterday and he did not, and yet filed suit first? Why?
abstract,
Sounds to me like this guy is a nightmare waiting to happen no matter what he does. If he was selling you a car I hope you would be just as mad about it.
As you have surely seen here on these pages, most "Sub-To" folks are more than willing to help and to explain what we can. It's like saying all lawyers are bad, or all real estate agents are bad, or all used car salesmen are bad. It's just a generality thrown out in the air when we are mad at them.
I am sure most of the guys and gals on here, when presented with the facts, would have been glad to help you out in any way possible.
Best of luck in defeating the scoundrel!
Ryno
Our lawyer is counter suing for the deposit, and trying to find out how they were going to finance this deal... keep your fingers crossed for me.
Ruman,
I reread your post and you are correct.
My mistake, thanks for the correction.
Marv