Subject To Deal In Progress/ Told It Is Fraud
Today is Jan 22, 2005 and I have been pursuing people currently in default via mailing letters and have selected one motivated individual who genuinely wishes for me to purchase his home before the auction slated for Feb 1. I contacted several people trying to get an attorney lined up to help with the offer, closing, land trust, escrow account, etc.. and was met with someone in the RE business who told me that although this is done often it is mortgage fraud. Period. Don’t continue. “Georgia is cracking down and mortgage fraud right now and you don’t you become their public example!” Needless to say…..this person has stopped me cold and left me questioning all I have read and learned via GaREI / Books / Seminars / etc….
I have read numerous posts here and I am befuddled what is the real answer. Is what I am doing fraudulent? Please advise (details below):
Thanks,
Charles
**Please See My Profile**
My goal is to buy, fixup and sell this property.
Property description:
4 BR / 2 ½ bath, slab traditional, 9 years old, great condition, golf community.
The deal I was working on looks like this:
1. Make a formal offer to owner, who accepts
2. I setup a land trust
3. Owner transfers property to my land trust via Quitclaim deed
4. I cure the loan by paying all late payments, fees, etc.
5. I give the owner some cash when they vacate the property (done via escrow account/agreement)
6. I repair / improve the home
7. I continue to make all mortgage payments
8. Advertise and sell the house and payoff the existing mortgages.
The figures look like this:
1st mortgage owed…..$158,000
2nd mortgage owed…….32,000
Back payments/fees.……..9,000
Repairs needed…….…….6,000
Liens/judgments…….....………0
closing costs...........................750
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Total cost……...……… $205,750
Estimated resale value.$240,000
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Potential Equity…….....…$34,250
Closing cost when sell......$4,000
RE Agent fees......................$6,000
Mortgage pays (3 mos)......$6,000
Utilities for (3 mos)................$500
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Cost to sell via broker.......$16,500
Profit potential to share w/owner.....$17,500
Charles,
Glad to meet you.
First off Subject To investing is not illegal. This "qualified" person informing you that what you want to do is mortgage fraud has no comprehension what they are talking about.
They must have heard third or forth hand about mortgage fraud and figured because you are doing a creative real estate investing deal it must be fraud also.
What is illegal in my opinon is the way you structured this deal and if it isn't it should be. Better go back to the GaREI, books and take some more seminars because apparently what you have found out thus far will have you wishing you did not even think about doing this deal the way you have structured it.
John $Cash$ Locke
[addsig]
I think the deal is too skinny - too risky for small profit potential.
My opinion only folks
C- :-o
John,
New investor still working my way through your course. Can you please explain why the way it is structured is illegal and can you let me know the correct way to structure.
thanks for the reply John. Could you explain to me why you think the way I structured the deal is illegal? It seams I am still missing something.
As for the deal being too skinny, yes. I have some ideas to reduce the resell costs, but it is still a good example to discuss.
Charles,
OK so I used a little tounge in cheek as this deal being illegal. It is not illegal for the record, but very poorly structured, just my way of saying you would be lucky to make spare change with this deal by the time you where done with it .
1. Is OK you need to make an offer & have it accepted.
2. If you feel the need to use a Land Trust by all means do so. Just show up at the property inspect it and give the owner moving money. You can do your own closing and set up an escrow at a Loan Servicing Company. Don't forget your due diligence very important.
3. Never and I mean never use a Quitclaim deed in this instance use a Warranty Deed or other state specific device.
4. You first try for a Forebearance with the lender to either put the arrearage on the end of the loan or work out a payment schedule.
5. Give the seller "U-Haul" money and be done with him. Correct pay him when he vacates the property. Done with him means never having to say your sorry because you did all the work and he got half of your efforts.
6. Hear comes the exciting part sell with a Land Contract and have the new owner do the repairs by discounting the repair 's from the total price of what you intend on selling the property for.
Have your buyer re-finance the property in two years and do not forget to add the two year appreaciation onto the properties selling price.
7. Sell the house quickly to a non conventional buyer and let him make the mortgage payments.
8. I see no need for a Broker in this deal. Make the money yourself.
9, Re-Calculate what your profit potential is without all the upfront money you want to come with to purchase this property and without splitting with the owner no need to.
John $Cash$ Locke
[addsig]
anitahgreen,
Keep reading you will discover the correct way to structure a deal and if you do have a question there is plenty of support available to you.
John $Cash$ Locke
[addsig]
John,
Thank you very much for your feedback. Your advice is well received and I agree that the deal I was structuring is not the best. Obviously I do need to get more experience / knowledge structuring and executing deals of this nature. Perhaps your material may help me? Seeking out and attempting to put together deals like this is what really helps me see what I do and do not know (not sure how else one learns without actually trying).
I will be looking into your materials. Access to you and your advice is certainly attractive to me, especially at this stage.
Thanks and best regards,
Charles