Question About Refinancing With Sub2...
I'm a total newbie (not bought yet,) here, so please don't murderize me for asking this... 
I've been reading through the posts this morning and one particular situation gave me pause. A seller needs out of their 104k @ 13% first and 12k second mortgages. Shorting the second one seems like the best idea, but if you even attempted to short the first the lender would see this and possibly want to call the mortgage due immediately. Now I realize that they most likely wouldn't do this due to current mortgage rates being lower - it just wouldn't make sense for them.
I realize that people do Sub2 so they don't have to get a credit check or deal with all that nonsense, but what if a buyer eventually *did* want a lower rate? What if I were to buy this property and then a year later rates dropped to 4%? Should I apply for a lower rate mortgage in my name and pay off the high rate one? This would free the original seller from everything and the property would be yours (and the new bank's) alone, correct? This would have the added benefit of helping the original seller's credit immensely. Would it hurt your ability to get further loans in your own name?
Does this even make sense? I spilled my coffee and am barely able to maintain consciousness.
I am hungry for knowledge, so please let it fly! :D[ Edited by KittyLitter on Date 03/29/2004 ]
Hi KittyLitter,
(what a name).
Welcome to the board.
Here are a couple of articles that might help.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=146
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=266
There is also alot of other information on the site and people here willing to help also.
John (LV)
I've read both of those articles already - the first one was informative but the second wasn't as much so. (I was amused, however, by the way the website automatically censored the word cla'sses because of the "a" word... :D )
Anyway - thanks for the links. For some reason they took me to a generic page, but I was able to find the articles by their ID numbers.
KL:
After you've done your sub2 deal with the seller, the property is yours to do with as you please (IMHO, this is the beauty of buying Sub2).
You are not under any obligation to the orig. seller to refinance to get him out from under his note, but if you wanted to you could do just what you suggest: refi yourself, paying off the orig. note and getting seller free.
You could also get your friendly mortgage broker to help your seller get financing for another purchase they wanted to make--just make your documents available to the broker to show the seller's new lender that he's not making payments on the orig. note anymore (purchase & sale agreement, deed in your name, payment history from your buyer, etc.).
Re: your ability to get future loans. I'm not an expert (please consult a mortgage broker or lender for this), but I believe you'd be in the same boat as the example above: if you can show that you've got non-owner occupied income paying for the refi, you may still have the ability to borrow more money.
Of course, if you're using John Locke's Sub2 method, you'll only have to worry about being spread too thin credit-wise for 2 years--when your buyer has fulfilled the contract for deed and pays off his note to you for the property. You then pay off either your refi or the orig. seller's note and walk away with the difference (and with an improved credit score!).
Again, just my (non-expert) opinion,
Andy