How We Do Deals
We structure most our deals 1 of 3 ways using creative finance. We use seller finance, subject-to, and a hybrid of the two to make sure both sides of the deal win. Below is a video explaining creative finance.
Seller's Guide:
1:15 - Why would a seller sell on creative finance?
13:09 - Selling subject to
20:39 - Questions seller should ask
24:54 - Who is the buyer usually?
29:31 - What is the buyer wanting to do with property?
33:07 - Does title/closing attorney know what they’re doing?
36:18 - Does my real estate agent know what they’re doing?
42:28 - How does the money actually get paid to my bank?
44:49 - What are terms?
48:46 - Debt-to-income ratio
What is Seller Finance?
Seller finance is buying anything with payments, or terms, to the seller.
Who is this for?
High equity sellers who want to make more on their property than the market is willing to pay, sellers who want the benefits of becoming a landlord without the liabilities such as fixing a toilet in the middle of the night, etc...
We only structure deals where both sides of the deal win.
What is Subject-To?
Subto is taking over existing payments on a property.
Who is this for?
Low equity sellers who will lose money or breakeven on the sale of their house.
How it works:
We pay any arrears, take over the payments of your mortgage, and pay agent commissions.
Real estate attorney on Sub-To: https://resources.pacejmorby.com/interview-with-paces-attorney/
Subject-To FAQs
Why would a seller do this?
Sellers may consider utilizing the Subject-To method in low equity situations as it allows them to relinquish ownership of the property without the need for additional funds or having to write a check at closing. Depending on the seller’s mortgage balance, this method may result in greater financial gain for the seller compared to a traditional sale. Additionally, it enables the seller to move on from the property as they are no longer responsible for expenses such as repairs, maintenance, utilities, taxes, insurance, and HOA fees. The seller’s credit score may improve as a result of timely payments made towards the mortgage.
What if you miss payments?
If we were to get abducted by aliens, you would keep any down payment we made, all of the monthly payments made along the way, any renovation costs, all arrears would be caught up, and you’d get the house back with more equity than you previously had.
Truthfully, it's better for the seller if we stop making payments.
Will this affect my debt-to-income ratio?
No it won't. Your old mortgage will be cleared off your debt-to-income ratio.
How does this affect my credit?
As the loan remains in the name of the seller, timely payments made to the lender will be reported to the credit bureau, positively impacting the seller’s credit score. This can be advantageous to the seller.
What about the due-on-sale clause?
This gives the bank, or whoever loaned the money, the right, if they wanted, to:
- Demand you sell the house and give them their money back
- Transfer the house back to the original owner
- Refinance the house and pay off the debt
or they can foreclose on the house.
This is RARE because banks don’t want to foreclose. It’s expensive and looks bad on them. You can usually call the bank if they notice and let them know someone else is making the payments and it’s getting paid and nothing illegal is going on.
If they still want to go through with it, we will simply re-deed the property back to the original owner and re-purchase it on an executory contract.
Is this legal?
Yes, it's not only legal, but sanctioned by the Federal Government. Fill-able HUD-1. This is a standard form that title/escro companies and attorneys use to build settling statements. Please note lines 203 and 503. Note this is a Code of Federal Regulation (CFR) document. Page 396, second paragraph states: “Line 203 is used for cases in which the Borrower is assuming or taking title subject to an existing loan or lien on the property.” Furthermore, all realtors study course material from a textbook called “Modern Real Estate Practice”. Unit 12 of that textbook covers the legality of subject to.
Video on subject to legality:
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