Friday, June 2, 2023

How to Profit by Assigning "Subject To" Purchase Options to Mortgage-Challenged Buyers

For those looking to invest in real estate in today’s market, there is a unique way to profit without the need for cash or loans, and without the risks or headaches of owning rental properties. In this article, I’ll show you how you can put salable homes under contract under existing mortgages, and then assign the contract to a buyer who isn’t able to qualify for the mortgage. Your profit is on average about 5% of the purchase price.

This is not a mortgage assignment

One of the latest crazes floating around the Internet, and many investors’ email boxes, is a concept called mortgage assignment. For those who may not be familiar with it, it sounds like you are passing a mortgage from one person to another. Keep in mind that this is not the same as a mortgage assumption where the lender legally transfers liability from the seller to the buyer. Instead, mortgage assignment is nothing more than assigning payments to the buyer while the seller holds the mortgage in his or her own name. In a mortgage assignment program, the underlying transaction is a sale subject to a still existing mortgage. In either case, the seller of the property is still on the hook, credit-wise, if the mortgage isn’t paid off. What you’re doing is finding sellers who are willing to sell their property under an existing mortgage and market that property to a buyer who has some cash, but doesn’t qualify for a mortgage in today’s tighter underwriting standards. cannot receive.

Why You Don’t Need to Be a Real Estate Agent

The first question that comes up is how can you do this without being a real estate agent? OK, that’s easy. What you will do is get the seller to agree to give you the purchase option on their property. You now have an equitable interest in the property. You will market your interest in the property to other buyers. This is no different than marketing your own property to buyers as an FSBO.

Understanding the “Subject to” Deal

In a “topic” or “sub2” transaction, you are purchasing a property subject to existing financing. This means that the existing mortgage will not be paid off. If there is equity in the home that the seller wants to cash out, the buyer will need to provide the cash, or the seller may agree to pay in the form of a second mortgage. Typically, a Sub2 deal is done when there is little or no equity in the property, because the seller either cannot pay the mortgage at settlement, or cannot pay any fees and commissions, or both. . The alternative is a short sale or foreclosure, and neither of these are easy or pleasant.

The biggest issue that one faces with Sub2 deals is the dues on sale clause. This means that when the property is sold, the lender has the right to call the mortgage due, meaning the buyer will again face foreclosure of the seller’s property. However, from the experience of nearly all Sub2 investors, the mortgage is not called once due for sale. Many gurus teach all kinds of tricks to avoid the lender being notified of the sale, including contracts for land trusts and deeds, but others will teach you to be straight with the lender and not lie or something. Don’t even hide The way a lender usually finds out about a sale is not when the new deed is recorded, but when the home owner’s insurance policy has a new owner. In my Find and Assign package, I explain the payables on sale clause in more detail and explain why it’s not something you need to worry about.

seller’s dilemma

Right now the market is perfect for doing Sub2 assignments. Many homes are now underwater, meaning the seller owes more on the mortgage than the home is worth. There are sellers who can no longer make payments on their mortgages and are either struggling to make payments each month or are behind on their payments and facing foreclosure. In Find and Assign, I have a matrix that shows the different options a seller has for getting rid of their property, along with the cost of each. If you are able to show a seller how he or she can walk away from their property and make mortgage payments without affecting their credit, then you have a motivated seller, and one who will be receptive to your offer.

buyer’s dilemma

In the past, you only had to fog up a mirror to get a mortgage. This means that you just had to stay alive! Banks and mortgage companies made loans to anyone who could fill out an application. There were no-doc loans, stated income loans, and loans for subprime buyers. Down payment we have as low as zero. Flash forward to today. Now, you need to prove your income, provide two years’ tax returns, bank statements, and a credit score north of 680. Now we have buyers who a few years ago could get mortgages, but who can’t now. Therefore, you are in the perfect position to sell salable homes to non-creditworthy buyers by simply having the seller exercise the purchase option subject to the existing mortgage and assigning this contract to a buyer for an assignment fee. The new buyer gets the deed upon settlement, and pays the closing costs.

finding a seller

There are several ways to find sellers, including Craigslist and posting ads on newspaper classifieds. A sample ad might say “We buy homes with little or no equity. Quit making any more mortgage payments.” A great way to find sellers is to call real estate agents and ask them to provide you with leads of people who want to sell but who can’t because they can’t come up with the cash to settle. Can. You can pay referral fee to the agent. If the agent is honest and says they can’t accept the referral fee, you can still legally pay the agent as your buyer’s agent. When you get the home under contract and then hand over the contract to the end buyer, the agent will receive your legal commission at the time of settlement, depending on what you have agreed upon. In Find and Assignment, I go over several other ways to find vendors for the Sub2 assignment program.

finding a buyer

Of course, you need buyers to close the deal and make money. You can find buyers by running ads that say “Buy home with no mortgage qualifications. Need 10% cash down.” You can run these ads on Craigslist and newspaper classifieds. You can also call mortgage loan officers and ask them for information on people who want to buy a home but who can’t qualify for a mortgage. All you have to do is give these loan officers your information and ask them to pass it on to interested buyers. You can offer a fee to the LO on any deal you do.

contract writing

There are two ways to do this. One way is to make a simple real estate purchase agreement where you write “and/or assign” after your name. In the purchase price section, you will write the price, then “subject to existing financing as detailed in Appendix A.” In the Appendix, you will list the balance of the mortgage or mortgages on the property and the current monthly payments. There are no special forms. are needed. This is just the wording you have to use. Another way is to write the purchase option on the home, using a similar theme of language. You will then specify either the purchase contract or the option for the new buyer. If If you use a purchase agreement, you need to make sure you have proper escape clauses that let you walk away from the deal if you can’t find a buyer. You don’t actually want to buy the property, and that’s what the agreement says. With a purchase option, the seller is giving you the right to buy the property, but you are not committed to do so. If you don’t get a buyer to allot the property within the 90-day period, you just walk away.

While doing these deals, there are also certain disclosures that need to be signed by the seller, namely disclosing the fact that the sale is subject to an existing mortgage and that the mortgage will remain in his name. You also disclose the possibility of a payable on sale clause. What I always suggest is that before you get started with this, you find a real estate attorney who has done Sub2 deals before. You can find one on Craigslist just like I did! In Find & Assign, I share with you how I did it, and what questions you need to ask. You may also need a title agency to close the deal, and I cover this in Find and Assign. Your real estate attorney should also be aware of one to use.

be sold

All you really have to do is ask the end buyer to write a certified check for their assignment fee after they’ve done due diligence on the property, including a title search, inspection, etc. The title search will show you any and all liens attached to the property, along with any judgments and delinquent taxes on the owner. You can use any title agency to do your search. The fee would be around $60 or so. You can either get the buyer to do so or get the seller to do so and make it available to potential buyers.

When you have a buyer for a 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 parties together and thereby earn your assignment fee. The key is to involve a real estate attorney in these deals and not try to do it off the “kitchen table”. You don’t want the buyer’s seller coming after you because you didn’t tell everything you should have. If you do it right, you can earn a reasonable income by allocating to just one or two assets per month. If you search online, you can find almost everything you need in forums and other sites. There are no special forms other than the purchase option, the assignment of the purchase option, the purchase agreement, and of course the CYA Disclosure Form. Other forms that are included are an authorization to release information and perhaps a power of attorney. If you can find a real estate attorney who has done these deals, this person can provide you with all the forms you need.

to find out more

in my find and assign package, I provide you more detailed information on how to do Sub2 assignment. All of this is found in one of the bonus packages in the form of a 42 page guide, along with all the forms and agreements you will need, including a very detailed disclosure form. I teach you several ways to find sellers and buyers, and even show you how to get others to view property for you with no upfront cash. With it, you get a PowerPoint package that you can use with vendors, along with other useful 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 what forms to fill out, you can start doing so with very little cash. All you really need is motivation and dedication to keep advertising online, and what to say to the people who call you with your ads. In Find & Assign, you also find scripts and information to send to sellers and buyers.

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