What Type Of Assurance Do I Have That You'll Make The Payments?
For all of you out there that buy properties sub2 the existing mortgages, i'm sure that you also get the following question:
"What type of assurance do I have that you'll make the mortgage payments?"
I realize the issue is that i'm not dealing with people motivated enough but how do you answer this question?
Thanks
Being new to the subject-to market, I asked the same question to a more experienced investor and I will share with you his response.
Basically, he offers to put an extra month up front to cover an additional payment. Also - he explains that because he is responsible for repairs, maintenance and insurance, that he has a vester interest in the property and that if he does not make the payment he loses his investment and everything that's been put into it.
I am hoping to use this wisdom soon on a deal I am working on, so I'll let you know how it works out.
Take Care
Thank you for the responses. I do use a loan servicing company, I do have signed references and even a couple people who will allow people to call and talk to them about their experiences, and do let them know that this is my business and if I don't do things right, I don't get paid.
People don't seem to care about that. Does it still come down to the motivation or can you think of any other tips for me.
As always--thanks
It was mentioned earlier that as the "buyer" he was responsible for the repair costs. Something I have heard of and intend to try is to tell the seller that you will only hold them accountable for repairs over $200. This is because they are infact now going to be a land lord of sort, so you can reason with them this way. When you find a tenant/buyer you explain to them that "being that you are going to be the eventual owner of the property, we expect you to act like you own it. So we expect you to make all repair costs upto $200, but nothing above." This keeps your tenant/buyers in control, because they know that they will be held accountable for all of the repairs to a certain extent, and also they made a huge down payment so they are going to try to take care of the said property. Explain to the seller that 95% of all repair costs are under $200, so he will probably not need to give much ( if any) money up for repair costs. I hope this helps, and if you can share any knowledge or have a question feel free to e-mail me!
thanks
Keith B.
you can record a performance trust deed in their favor. So if you fail to perform, they can foreclose & get the property back
Cobrastang,
Sorry, but it doesn't work that way with Sub2. With a sub2, you ARE a buyer, and the seller is NOT a landlord. Once you take over the property, you are responsible for ALL of the repairs, period.
sanjosee, that's a good suggestion, however at that point it is not really a sub2 deal in the strictest form, but rather owner financing. I personally prefer some type of trust/mortgage like such as it does give the sellers added security, but I don't think that most sub2 investors would agree.
Frogger, if you have all that you said in place and working and they are still questioning you, it's probably not a doable deal, unless you are willing to give sanjosee's idea a try.
Roger
Thanks everyone for your comments. I just feel that I have been wasting my time with all of these sellers. I am finding properties to buy but it seems that I'm missing a lot of opportunities.
The performance mortgage/deed of trust is a great idea. The only thing I don't like about it is that it keeps the seller involved and issues may result later when trying to get clear title.
Thanks again to all.
No more involved than any other bank or lender that has a deed of trust on the property. All the performance mortgage does is give the sellers a firmer legal hold should you either start making payments late, or worse, not at all. There would be no way that they could use it to "change their minds" later down the road.
Afterall, you will be the one writing it up. You can give them as much or as little control as you want.
Roger
Roger,
I imagine this senario:
I buy a house sub2 and I can't find the seller or the seller is uncooperative and basically I can't get the seller to sign a satisfication of mortgage. What would I do now?
In May 2003 I bought my first rehab house on contract for deed rather than Sub2. I made a whole lot of mistakes but one of my biggest issues was that the seller refused to sign a deed for the longest time--she wanted more money. Here I was ready to double close and we couldn't get a deed!
Luckily there were some RE agents involved and my end buyer happened to know the origional seller (I was working in a small town) and she eventually signed.
Needless to say I have decided to never leave the seller in control of any property I purchase. I want to avoid ever needing the sellers signature anytime after closing.
Any ideas? THANKS
Well, as stated, once you sign some sort of mortgage/trust with the seller then it's not a sub2 deal in the strictest sense, so the deal will come with new problems. My knowledge of performance notes is limited, however, I believe that they are put in place only to setup terms of what will happen should you not perform. I don't really think that you would need them to sign anything when the property finally closes out, because the trust will be satisfied. It's definitely worth running by your attorney if you choose to go that route.
If they will need to sign something, then I'd go ahead and have it signed upfront, then have the attorney hold in escrow until the terms of the agreement are met. This would have also solved your CFD problem as well. There, I would have required that the seller put a signed warranty deed of trust to be held in escrow by the attorney until such time as the agreement terms are fulfilled. If you would have done that, then she couldn't have held up the deal.
I still think the bottom line is that the sellers aren't motivated enough to do the deal. Another thing to consider is your closing strategy. There may be something in your sals pitch that is throwing this off as well.
Roger