What happens to the upfront money in a subject-2?
If the seller for whatever reasons talks with the lender and the subject-2 deal falls apart and steps are taken for foreclosure what happens to the buyer? What about the upfront money he paid? Does he gets it back from the guy who sold the property to him? What is the chance that the now dispossessed buyer will sue?
William82,
Glad to meet you.
Ok let's take a 'what if' senario all these things were to happen.
The correct way to look at this is:
The seller tells the lender he sold the property and the lender calls the loan due and payable under the DOS clause.
If you have the proper paperwork your buyer understands that the loan could be called by the lender. In my contracts in "big bold print" it in part states
the buyer is responsible to re-finance or pay off the property should the Due On Sale clause be envoked by the lender.
It is just a matter of having the correct paperwork when doing any creative real estate investing deal.
In the case you described the seller has the option of paying off the loan or putting his credit in the dead beat pile, since he initiated the call, however it would be difficult to understand why he would do this.
Your buyer can re-finance or pay off the property or will lose the property, this is according to the contract you have with him.
No one likes to see this happen but if it ever should, when every one knows what their responsibilty is in the deal then a law suit would only benefit an Attorney.
Welcome on board this board, every form of investing has risks, however I know of no other endeavor to make serious money where the rewards far out weigh the risks as in Subject To investing.
John $Cash$ Locke
Thanks for your response. Is the buyer who is in a house purchased using subject-to mechanics able to request money back from me who is the seller now that the deal is coming apart?
As the investor I am in the "middle" as far as the buyer is concerned and the target of his anger. This is especially so if he has not had enough time in the property to get his credit in line. What usually happens in circumstances such as this?
I understand that the seller's credit is now "toast" because of his new problem with his lender and the property can be deeded back to him at this point. Right?
Thanks!