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How to benefit by assigning "Subject to" Buying options for buyers with mortgage problems

For those looking to invest in real estate in today’s market, there is a unique way to make a profit without the need for cash or credit, and without the risks or headaches of owning rental properties. In this article, I’ll show you how you can place unsold homes under contract subject to the existing mortgage, and then assign the contract to a buyer who has failed to qualify for a mortgage. Your profit is on average around 5% of the purchase price.

This is NOT a mortgage assignment

One of the latest fads circulating on the internet now, and in the email boxes of many investors, is a concept called Mortgage Allocation. For those unfamiliar with this, it will appear that you are simply assigning a mortgage from one person to another. Note that this is not the same as a mortgage assumption in which the lender legally transfers responsibility from the seller to the buyer. Rather, the assignment of a mortgage is nothing more than assigning the payments to the buyer, while the seller maintains the mortgage in his name. In the Mortgage Assignment program, the underlying transaction remains a sale subject to the existing mortgage. In any case, the seller of the property is still hooked, as far as credit is concerned, if the mortgage is not paid. What you will be doing is finding sellers who are willing to sell their property subject to the existing mortgage and marketing that property to a buyer who has some cash, but cannot qualify for a mortgage under today’s stricter underwriting standards. .

Why you don’t need to be a real estate agent

One of the first questions that arises is how can you do this without being a real estate agent? Well it’s simple. What you will do is get the seller to agree that you place a call option on your property. You will market your interest in the property to other buyers. This is no different than marketing your own property to buyers as FSBO.

Understanding “subject to” offers

In a “Subject to” or “Sub2” agreement, you are purchasing the property subject to existing financing. This means that the existing mortgage will not be canceled. If there is equity in the home that the seller wants to retire, the buyer will need to have the cash on hand or the seller may agree to make the payments in the form of a second mortgage. Typically, a Sub2 deal is made when there is little or no equity in the property, because the seller is unable to pay the mortgage at closing, or pay fees and commissions, or both. The alternatives to this are a short sale or foreclosure, and neither of them is easy or pleasant.

The biggest problem one faces with Sub2 offers is something called a Sell Expiration Clause. What this means is that when the property is sold, the lender has the right to cancel the mortgage, which means that the buyer would have to refinance the property of the seller facing foreclosure. However, in the experience of almost all Sub2 investors, not once has a mortgage been required on the sale. Many gurus teach all kinds of tricks to prevent the lender from being notified about the sale, including a land trust and a deed contract, but others will teach you to be honest with the lender and not lie or hide anything. The way a lender generally learns of the sale is not when the new deed is recorded, but rather when the homeowner’s insurance policy has a new owner. In my Find and Map package, I explain the sale expiration clause in more detail and why it’s not something you need to worry about.

The seller’s dilemma

Right now, the market is perfect for Sub2 assignments. Many houses are now under water, which means that the seller owes more on the mortgage than the house is worth. There are sellers who can no longer afford their mortgage payments and are struggling to make their payments each month or are behind on their payments and face foreclosure. In Find and Allocate, I have a matrix that shows the various options a seller has for disposing of their property, along with the costs for each. If you can show a seller how you can get away from your property and make mortgage payments without hurting your credit, you have a motivated seller who is receptive to your offer.

The buyer’s dilemma

In the past, all you had to do to get a mortgage was fog up a mirror. This means that you simply had to be alive! Banks and mortgage companies made loans to anyone who could complete an application. There were undocumented loans, declared income loans, and subprime homebuyer loans. The initial payments are as low as zero. Fast forward to today. Now, you must prove your income, provide two years of tax returns, bank statements, and have a credit score north of 680. What we have now are buyers who a few years ago could get a mortgage, but not now. . Therefore, you are in the perfect position to sell houses that cannot be sold to buyers that cannot be loaned, all simply by having the seller make a call option subject to the existing mortgage and assigning this agreement to a buyer for a assignment fee. The new buyer obtains the deed at settlement and pays the closing costs.

Find sellers

There are many ways to find sellers, including posting ads on Craigslist and newspaper classifieds. A sample ad might say, “We buy houses with little or no equity. Avoid making more mortgage payments.” A great way to find sellers is to call real estate agents and ask them to provide you with leads from those who want to sell but can’t because they can’t get the cash to settle. You can offer the agent a referral fee. If the agent is honest and says they cannot accept a referral fee, you can still legally pay the agent by having the agent become your buyer’s agent. When you get the house under contract and then assign the contract to the final buyer, at closing, the agent will receive his legal commission, depending on what he agrees to. In Find and Assign, I go over many other ways to find sellers for the Sub2 assignment program.

Find buyers

Of course, you need buyers to complete the deal and make money. You can find buyers by posting ads that say “Buy a home with no mortgage qualification. 10% cash required.” You can run these ads on Craigslist and newspaper classifieds. You can also call home loan officers and ask for tips on those who want to buy a home but cannot qualify for a mortgage. What you may have to do is simply give your information to these loan officers and ask them to give it to potential buyers. You can offer a fee to LO on any deal you make.

Drafting the agreement

There are two ways to do this. One way is to write a simple real estate sales contract, where after your name write “and / or assign”. In the purchase price section, you would write the price, then “subject to existing financing as detailed in Appendix A. In the appendix, you would list the balance of the mortgage or mortgages on the property and the existing monthly payment. Not needed. special forms. It’s just the wording you need to use. The second way is to write a purchase option on the house, using the same language theme. You would then assign the purchase agreement or option to the new buyer. If you use a purchase agreement purchase, you need to make sure you have the proper escape clauses that allow you to walk away from the deal if you can’t find a buyer. You don’t really want to buy the property, and that’s what the agreement says. With a call option, the seller is giving you the right to buy the property, but you do not agree to do so. 90 day period, simply withdrawn.

When making these agreements, there are also some disclosures that must be signed by the seller, that is, disclosing the fact that the sale is subject to the existing mortgage and that the mortgage will remain in your name. It also discloses the potential of the Expiration Clause for sale. What I always suggest is that before you get started on this, find a real estate attorney who has done Sub2 deals before. You can find one the same way I do, on Craigslist! In Find and Assign, I tell you how I did this and what questions to ask. You may also need a title agency to close the deal, and I cover that in Find and Assign. Your real estate attorney should also know one to use.

Close the deal

All you really have to do is get the End Buyer to issue you a certified check for your assignment fee after doing your due diligence on the property, including a title search, inspection, etc. The title search will show you each and every link that is attached to the property, along with the owner judgments and back taxes owed. You can use any title agency to conduct a search. The fee would be around $ 60 approximately. You can either have the buyer do it or have the seller do it and make it available to potential buyers.

When you have a buyer for the property, you want to refer them to your real estate attorney to close the deal. In this way, you have done your part to bring the two parts together and thus earn your allocation fee. The key is to have a real estate attorney involved in these deals and not try to close a “kitchen table.” You don’t want the buyer’s seller to approach you because you didn’t disclose everything you should have. If you do it right, you can earn a reasonable income by assigning just one or two properties per month. If you search online, you can find pretty much everything you need on forums and other sites. There are no special forms, apart from a Call Option, Call Option Assignment, Purchase Agreement and of course the CYA Disclosure Form. Other forms involved are an authorization to release information and perhaps a power of attorney. If you find a real estate attorney who has made these deals, this person can provide you with all the forms you need.

Learn more

In my Find and Assign package, I provide you with much more detailed information on how to perform Sub2 assignments. All of this is in one of the bonus packages in the form of a 42-page guide, plus all the forms and agreements you need, including a very detailed disclosure form. I teach you many ways to find sellers and buyers, and I even show you how to get others to search for properties for you without cash upfront. Along with this, you get a PowerPoint package that you can use with vendors, along with other helpful tools and resources. No need to spend hundreds of dollars on courses or workshops. Once you understand how to find buyers and sellers, and know which forms to fill out, you can start doing this with very little cash. All you really need is the motivation and dedication to place ads online, and what to say to those who call you from your ads. In Find and Map, you even get scripts and information to send to sellers and buyers.

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