Subject-to AND Bank Is Aware
OK, for background, I am an attorney. I practice patent law, not real estate law. Though I understand the law and the rules pertaining to REI just like a pediatrician understands brain surgery. However, you wouldn’t hire the pediatrician to perform brain surgery even though he is a doctor. Similarly I don’t know the details or the mechanics of real estate law.
I have been a “very active” member of my REI association (GaREIA for those familiar with it) for about six months. I have been seriously trying to launch this business for about the last three. I have met a lot of people, talked to a few national gurus, and talked to a whole lot more local gurus here in Atlanta. Most seem to suggest having the seller place the Subject-to property in to a land trust AND then transfer the interest to us, the buyer. This is to camouflage the transaction from the bank lender so as not to trigger the due on sale clause. Additionally, as we all know it also maintains anonymity.
My understanding is that the US Supreme Court said that “a transfer of property into a land trust for the purposes of estate planning could not be used as a basis to trigger the DOS clause.” The problem here is that the transfer into a land trust that I hear suggested is “really” to hide the transaction from the bank. It is not for purposes of estate planning. Now I could be completely wrong, but that seems like someone could argue that that is mortgage fraud. Because I simply don’t know if this is even really an issue, I long ago decided that I would take the property subject-to and transfer it into my LLC.
To date I have made a few offers to not-yet-fully motivated sellers. As expected, they have decided to prolong their misery. When I do get one my plan is to provide the lender with the appropriate paperwork authorizing me to have access to the account. All checks would be paid by my LLC for the benefit of the property. My thought is that the lender would be fine with this since the alternative is that they foreclose upon the original borrower because he/she failed to pay or they call the loan due on me. Either way, the lender gets a property that they aren’t likely to want.
What’s the real deal? I know that there are no guarantees, but I am reading in this forum that if the lender is made aware of the transfer that a lot of you have had your loans called. Is there anybody out there who has (1) had the lender aware of their ownership, and (2) NOT called the loan due?
thanks
null
Scogar,
Glad to meet you.
This link will take you to an Article I authored and will talk about the basics of Subject To investing.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=146
I do not use Trusts, but advise my students that if they feel the need to use one by all means do. Another Article you will be interested in is some things going on in North Carolina.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=623
I have never had a loan accelerated and I figure if anyone should have, it would have been me. As far as notifying the lender I am sure there are lenders that if you told them what you are doing they would not call the loan, This however might change depending on how the lender feels on any given day so there is probably no hard fast rule when contacting a lender.
Just a little food for thought on your part.
John $Cash$ Locke
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Thanks John, I especially like the Loan Servicing Company. Very professional. I don't recall seeing that article in my searches so I am glad that you tagged it.
Scott
I recommend you search for his course so you don't prolong YOUR misery <g>
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Scogar - I also am in the Atlanta area and have been thinking about joining GaREI. Do you think it is worth the money and time? Also, how have you found the Sub 2 market here in Atl? Are there too many investors and not enought distressed homeowners or the other way around?
Thanks.
null, I just starting investing in real estate about 6 months ago and im on my 4th deal so far and have made a good chuck of money. I am only 20 years old and i dropped out of college to do real estate. It just makes me laugh when i hear of Lawyers doing deals and trying to get into the business. you spent thousands of dollars and hours and years to become and attorney and now you are persuing something that takes no formal education. Is the system that weak that even top professionals arent making good money and enjoying their jobs? In your opinion was it worth everything you have been through to become a lawyer?
P.S. my girlfriend may want to be a real estate attorney. what is average pay to start for a real estate attorney these days?[ Edited by ryand on Date 01/06/2005 ]
Hi Fishbowl1. Whereabouts are you in the Atlanta area? How long have you been investing? I have been using bandit signs primarily on the weekends and have receieved a number of calls. I haven't been doing this long so I don't have a lot of data, but out of the dozen or so calls that I have gotten; a couple were motivated enough to offer me there houses subject to. One was at $285,000 in a $295,000 neighborhood. The other was $174,000 in a $170's neighborhood. Great if I wanted properties, but no real equity and I didn't see enough cash flow to cover the payments so I passed.
As for GaREIA, I like it a lot but there is another one called Atlanta REIA (I think) and I guess there is some bad blood between them but I have talked to investors that are members of the other and they seem to like it as well. To join GaREIA it costs a bit less than $200 but I have thought it worth it. If you want to talk more on it let me know.
Scott
Hi,
I also invest in the Atlanta area, and know quite a few people that do the bandit sign thing. You know, the 200+ signs you see at each and every intersection? Anyways, what you said is what most of them say, people with no equity, and above market value owed on their houses call them, wanting to give their houses to them, so most pass. If you can figure a way to make a buck on those houses, you can make a fortune here, no doubt about it.
I'm also a member of GaREIA, and have generally found it worthwhile, particularly when I was first starting, and until I made a few connections. It's mostly people hyping overpriced houses, and overpriced services, but you CAN meet people there that are useful for your business, just don't go their thinking you're going to buy one of the houses on those flyers, 'cause in general, they're WAY overpriced, I've found!
Good luck, and if you want to chat, anyone in the Atlanta area can feel free to PM me...
Hi Ryand. You had a bunch of questions that I’ll try to answer. First you said: "I am only 20 years old and i dropped out of college to do real estate. It just makes me laugh when i hear of Lawyers doing deals and trying to get into the business. you spent thousands of dollars and hours and years to become and attorney and now you are pursuing something that takes no formal education. Is the system that weak that even top professionals aren’t making good money and enjoying their jobs?”
Well, I do make a pretty good living, that’s true. But generally when you are an employee your employer doesn’t give you lots of money for nothing. Sure the education comes in handy and is necessary to get the job, but there is no such thing as a 40 hour work week for me. I work 60-80 hours each week. When you do the math, that dilutes my salary pretty significantly. Long story short – I am trading my hours for dollars and I am capped at the whims of my employer. I wish to maximize my returns on both my time and my money and REI is the way in my opinion. Also I don’t know of anyone who really wants to have a boss when they can be their own boss.
You next asked: “In your opinion was it worth everything you have been through to become a lawyer?” Short Answer is Yes. The reason is that in 1992 when I worked at Electric Boat (I’m sure you know it from where you live) I had to make a decision because EB was going down the toilet. I decided to go into patent law because I thought it opened a lot of doors…and it did. I worked for myself with a great partner for 5 years in Boston and loved it. I just didn’t like having to rely upon my clients needing my services and since we were small, the money wasn’t the greatest so I went in house to a corporation. Lots of good things, but as I said I just don’t like working for the Man when in my opinion I have the ability to do so much more.
So how has law helped me? Well I’ll betcha I can read and understand a contract better than a lot of people. I know why certain contingencies are there and how to get others in when I want. Basically if you are an auto mechanic you have a much better idea of what needs to be done on your car, how much time and money it should take, etc. You are informed. As a lawyer I am in a great position for REI, but I would always hire a real estate attorney to do my work since I don’t specialize in that area.
Last, have your girlfriend call a few real estate attorneys or paralegals in her area and go to coffee or lunch or something. Just get her to pick their brains a bit because salaries are pretty different between SE Conn, Boston, NYC, and Atlanta. Also it depends if she is a litigator, does commercial work, some other specialty, or simply closes residential real estate deals. If she does the latter, it’s people like us, regular consumers, banks, etc. that are looking for the cheapest costs to close that drive the market prices. Typically residential real estate closers have to work lots and lots of volume because there profits are so tight.
Just like in REI, education is key. Whether or not you can use it to help your REI career is up to you.
Good luck
Scott
scott.
thanks you for your answer, you were very helpful. I guess it just doesnt make sense to me to go to school for so long and spent so much money to do something you dont really want to do. I know what i pay my attorney to do closings for me and it isnt very much. so thats why i ask. also i was wondering this, if you started REI the day you started your 8 year journey to become a lawyer where would you be today? Like i said before, it just doesnt make logical sense to me to go to school so long to become a professional and then just persue something after school that doesnt require a formal education. It just makes me realize that no job is a good job and even the "best jobs" arent worth it. I dont mean any disrespect by this at all. you know what i mean? I have one last question. i dont know where to begin as far as pay. could you give me a ballpark answer? say i just get out of college to be a rei attorney here in SE CT. I am mainly just going to concentrate in res. closings and work for a local attorney to start off. Am I looking at starting at 50k per year? 100k Per year 120k per year. i am clueless and i want to know if its worth it for my girlfriend to persue this career.
Thanks you for all of your help, Ryan
Do what you love and you will never work a day in your life. This post reminds me of my sister and my neighbor. My sister was a merit scholar in high school, top undergrad school, then law school, clerked for a judge, etc, etc. The neighbor boy went to vo-tech for plumbing,worked subcontracting for new construction and now is a hugh landowner and developer. He could buy and sell most of us and yet he barely made it through high school. If you have a chance go to school; an education can't hurt but it is not a ticket to riches. I thank the day I was downsized by a big corporation. Now I would rather sell hotdogs from a cart in the street that work for someone else.
Ryan, Investing in education whether school or REI is always worthwhile. Just think of it as a tool to help you do what you want when you grow up. At 20, you can take a year or two or five and see if this works for you. You have time, just don't close any doors that don't need to be. I have to agree with rewardrisk " Do what you love and you will never work a day in your life".
As for how much money your girlfriend can make, you yourself said it best. "I know what i pay my attorney to do closings for me and it isnt very much." She would be in those shoes. BUT one always must remember that "The Best" can always charge the highest prices. If she found a niche and was the best the sky can be the limit. But if she works for someone then she will be working in the mill until she excels or otherwise is noticed.
Don't get me wrong. Some people are satisfied with working for others but most of us here I would presume want more. Working as an attorney can be fun but I do think I would be much further ahead if I started investing 8 years ago (or at least my ex-wife would anyway.)
As far as actually answering your question... I couldn't say it better. Just call a couple of attorneys in the area that specialize in real estate law and say: "say i just get out of college to be a rei attorney here in SE CT. I am mainly just going to concentrate in res. closings and work for a local attorney to start off. Am I looking at starting at 50k per year? 100k Per year 120k per year. i am clueless and i want to know if its worth it for my girlfriend to persue this career."
Another alternative would be a law professor at UConn. Phrase the question like you did and you will get a real good idea. If I were to guess though maybe $48,000, maybe $60,000 but realize that I may be way way off and I haven't lived there since the casino was a bingo parlor and a lot might have changed with the local salaries.
Good luck
Scott
Hi Jam200;
I guess you have to be a paying member to private message someone here. That seems to mean buying something or paying for a membership. I would like to talk, but at the moment I don't seem to have a way to get hold of you and I don't want to offend the listmoms.
Scott
once again thanks for the reply. that was a pretty funny comment about your ex wife being further ahead. thanks for making me laugh. but once again thank you taking time out of your day and answering my question. Its people like you that make up this great web site.
Thanks, Ryan
I Ditto this concerning Dave Whisnant. This guy is outstanding! He can be reached at Wiltshire **Please See My Profile**
if you are aquiring the prop. "sub. to" . you will be paying the monthly payment for the owner and the loan will remain in his name. you will in no way be obilgated to the loan , because you have not signed any obligation. the loans performance will not be in anyway attached to your credit. the other reply is refering to taking over an "existing loan" your question refered to the method know as "sub to"...................km
I would say if theres a line of credit on the house I would pass on the deal for 2 reasons. 1st, the bank will call that line due, maybe not tomm or the next day but a year down the road, 2nd if theres a line, the seller might have access to that line and pull money out of it whenever they want. There are many more deals out there w/o credit lines but when buying sub2 the best types of loans are the 15 and 30 yr mortgages.