In case you take over payments and purchase a home “Subject To”, this is how it will very likely go for you.
For starters, anyone who does not recognize what a “Subject-To” purchase is, it is when you simply take over payments on an established mortgage with an informal Transfer of Deed. That’s it! The house now becomes yours. This is a well trained real estate investors best kept secret.
Performing your first “Subject-To” purchase might be frightening, however it is also a whole lot of fun! When the real estate teacher stood before the class and said, “having a home given to you is rather simple” everyone in the class, including me personally, thought he was bonkers.
Well, he was correct! Second to paying cash for a home, this is the easiest way to buy a home. You simply need to live through the fear of your first time! Once you have carried out a few of these, it just becomes second nature.
This is how the flow will more than likely go for you:
1. Seller will in all probability contact you from one of your lead producing efforts. You will pre-qualify them on the phone the best you can so hopefully you won’t waste your time and energy going to their property. You need to have a good idea if the home feels like a fit, and therefore the seller ought to have a concept of what you will propose even before you get off the telephone with them. Additionally, you should have a “close” estimation of what “they say” is owed on the house.
It would be to your advantage not to have a conversation about how you you would like to take over payments over the phone. Wait until you are in the homeowners home for that conversation.
2. Before you go to the home, it is advisable to prepare yourself. You should have a stack of comparable sales (comps), in order to compare the house with others within the neighborhood so that you can uncover the present market value of the property.
You may get comps by contacting a neighborhood Title Company or maybe a Closing Attorney. When I started out, I received comps from the Customer Relations Department at “Stuart Title”. Once you know exactly what the house is worth, then,
Go to the residence to meet with the owner of a house and to check out the property. If the property needs a great deal of work, then it may be best for you to pay for an inspection of the residence.
After arriving at the home and getting comfortable with the seller, that is when you would discuss with them about wanting to take over payments and buying Subject-To”. If we come to an agreement, then I would sign a Purchase & Sales Agreement on the spot, along with all of the supporting documents. However, many of you will most likely not feel comfortable enough to achieve that. So I suggest that you talk with the homeowners and get comfortable together.
A very important factor that you will need to perform is uncover the “EXACT” pay off amount of the loan. AND, you need to determine whether there is a pre-payment penalty attached to the loan. The only way this can be done is to have the sellers sign an Authorization To Release Information Form (ATRIF). Then call the bank on the seller’s behalf, fax over the (ATRIF) and obtain the EXACT payoff amount.
When you sign the Purchase & Sales Agreement, just put “Approximately $XX, XXX” in the space designated for “Loan balances taken “Subject-To”. The homeowner should have a previous payment coupon close at hand that will provide you with an estimated pay off balance. Additionally list the amount to take over payments.
3. Once you have the property tied up, open Escrow and verify all the details they have provided you. Loan balances, liens, clear title, any inspections you choose to do, etc. Do your due diligence and ensure that everything is in order.
4. I have the home sellers sign all of the “Subject To” supporting documents when they sign the Purchase & Sales Agreement. If you are having the home owner place their home in TRUST (this is a real estate investor secret), it is the Trustee (not you) who will sign all of the closing documents at the Title Company or closing attorney’s office. My recommendation is that you name the Trust the last name of the homeowner. Such as, “The James Family House Trust”.
The benefit of using the last name of the home owner is simply because it maintains the title in the name of the seller, giving the impression that they never sold it. This could possibly be essential for the Due on Sale Clause situation.
5. I Seriously Recommend that you pay the fee and close with a Title company or Closing Attorney to ensure you get a Title Insurance Policy on the residence.
Additionally, you will be required to care for the homeowners insurance policy issue on the property, if you don’t understand how, then you will need to study up on this one. It is a little confusing, but it can easily be done.
Naturally, the essential concern is to make sure that the mortgage company does not find out about the transfer of deed, which could trigger the due on sale clause. Making use of Trusts assists in this matter!
There are many ways to buy a home and close the transaction, but a “Subject To” purchase can close within a few days. Once you secure the payoff amount and the Title Company gives you clear Title, after that you can close.
Study up, then go find a nice property and just take over payments!
