Hi,
CatLover here and I have some questions about Sub2's and seller financing that I've been reading about on this forum.

1) Are Sub2's the same as "subject to" clauses? If so, when is this clause used? Could someone give me some examples of the clause statements?

2) I understand that a seller can offer a "seller financing" to a prospective buyer that cannot bank qualify. The seller can then sell the note to an investment/mortgage company at a discount.
My question is how much "discount" is involved when selling a note? What would be considered an average percentage of the price cut?

Sub 2 can mean many different things but in Real Estate Investment it is usually referring to purchase of a property and keeping the original owners loan in place... purchase is subject to the existing mortgage.

It is not actually considered Owner financing however it is in a way because the original owner is still responsible for the existing mortgage and should understand the agreement including all the terms.

Owner financing is sometime as you have described but more often the owner financing is probably a Mortgage by the owner with a balloon payment in 3 to 5 or 7 years where it will be refinanced and the original owners are paid off.

If the plan is to sale the note, care should be taken to make sure the note is written in the form that the note buyer wants... or you could see a very significant discount required to get it sold. So.... it would be best to identify the note buyer before making the note.

Buying a property Sub 2 is not for everyone and real estate agents should Not become involved unless they are fully knowledgeable of the risk and potential problems.

While I do purchase properties Sub 2 for my own personal investments... I do not generally hold them very long in that status... usually less than 6 months and never more than 24 months. I only assist very knowledgeable investor clients with these forms & keep the numbers very small and double up on the due diligences.

Contact the lender before buying anything subject-to and get authorization to avoid due on sale problems.

But then if you plan to unload in a years time, you could resell before the note accelerates.

NEVER contact the Lender... first you have no right to... you are not a principle to the mortgage.

Due on Sale problems are predominantly a figment of imagination for people not familiar with how they work or how to work them.

Making an improper contact with a lender will almost always assure you WILL have a problem when one could have easily been avoided.

Realty check is 100% correct! If you wish to learn more about Sub2 investing, I would recomend John Locke as a mentor. The best way to locate Mr. Locke is by doing a google search or gong to thecreativeinvestor.com. Yes, a lender has the right to call the loan but it would be extreamely rare for this to happen when the loan is "performing"!

I am familiar with mr. Locke's products and others. You people are advising others to risk havng their loans called in a rising rate market.

Due on sale is not a figment of imagination. READ your mortgage and note closely and it's spelled out CLEARLY.

Now if you are looking at the statistics of loans getting called, well that number is indeed small.

I've never had a problem getting any of my deals called after notifying the lenders.

There are alternatives to this by means of land trusts and power of attorneys but without education in that area of investing, I would recommend notifying the lender.

You're not doing the original seller any justice by putting them at risk with due on sale.

you should do some research on google. I found some good stuff on this subject there

Jaber,

I personally have not done a sub 2 deal, but I don’t see any problem in doing so if one is financially secure and ethical. Yes, this type of investing does put the note holder on the line but I believe that this is the last ditch effort for the homeowner. I have been with mentors and gone through the process numerous times as an observer and 100% of the homeowners were behind in the payments, NOD had been posted and they were weeks if not days from being out on the street. The investors that I have worked with paid off back payments, cleaned up liens, paid off judgments and given them enough cash to walk away and start over! Every deal that I have observed was a no equity deal. The only reason that I have not pursued this type of investing is the fact that I can’t choose the location and location is the single most important aspect to me. I am absolutely certain there are some sleazy investors out there but there are some hero’s too! I only wish some of the unfortunate people out there that are faced with foreclosure new enough to get themselves out of that mess.

I've seen dozens of sub2 deals apart fall through leaving the noteholders in deep doo doo.

Sub2 deals aren't always a last ditch effort for people. I could be but not always.

I suppose if you can bail the seller out in the event it's called then it's not a big deal. But if your banking on "IF" this and "IF" that never happens, then it's a promise of security without substance.

I can certainly respect those that are financially capable of possible bail out but more sub2 investors than not are in worse situations than the seller they are trying to bail out.

How many times have you heard, "Get rich with no money down deals, even if you have no or bad credit."

What are the chances ofthose people being in position to help recover a DOS call?

People that don't know how to drive a car have wrecks.... people that attempt to use Sub-2 that don't know how also have problems.

Jabber.. hope you don't do them

That makes it easier for those of us who know about them and frequently use them when it is beneficial to the deal at hand.

Reality Check,

I've done many sub2 deals using different title seasoning and DOS circumvention techniques.

You never answered what your solution is to protect the seller if and when the note does get called? Do you take the hits or hope that it doesn't happen?

Let's see if I got this right.

Hypothetical Scenario:

Seller:
-Delingquent on property taxes and mortgage payment
-no equity
-lender about to foreclose
-just wants out

Buyer:
-an Investor doing a rehab/flip
-has no money down
-would like a sub-2 financing

My understanding of what the deal might look like:
-Seller will refi to a jumbo
-buyer will make the small jumbo loan payments while repairs are being performed
-buyer will sell the house after repairs and seller pays off jumbo loan and delingquent taxes
-Buyer pockets the difference between purchase and selling price as profit.

Am I close? If not I'm hopeless.

You're pretty much on target except the following.

A seller doesn't have to be delinquent on taxes and mortgage payments to do sub2 deals.

There may be equity in the property

There may not be a foreclosure

Seller just wants out because they are out of state or they just want out due to divorce, death in family, health reasons, retirement, who knows..

Many tend to associate sub2 deals with desperate sellers and foreclosures but that's not always the case. Some people just don't like their spouses so they want out like NOW.

Or they want out because 18-24 months later they realize that home ownership isn't a smart move for them. Maybe they received a job offer elsewhere and the property has little equity in place to pay commission.