2 Subject to Questions - Posted by Jim C

Posted by Jay - (Indy) on December 29, 2000 at 08:38:55:

For what it’s worth- We use LeGrand’s methods for subject to and haven’t had any problems so far after two years. We also know of several others in our market that operate in a similar fashion with no problems on subject to deals where you get the sellers to qualify for a new mortgage via an unrecorded land contract dated one day prior to your subject to agreement.

I haven’t been to a LeGrand event for several months but I find it hard to believe that they are pushing Lease Options over Subject To deals.

I’d be interested in hearing how others are handling these situations.


2 Subject to Questions - Posted by Jim C

Posted by Jim C on December 29, 2000 at 02:03:00:

I have a couple of questions on “subject to” deals:

  1. What legally binds a “subject to” deal? Is it just me giving them my word? Or is there an actual legal document that must be signed by both parties?

  2. What benefits does the owner have in letting me take over their mortgage “subject to”? I mean it seems great for me, but how would I be able to explain it to them to make it sound like a reasonable solution to their problem? I don’t want to just say “I take over your mortgage, but you are still liable for it”. That doesn’t seem like a good way to explain it to them. How can I make if sound beneficial to them?

Thanks a lot!!!

Re: 2 Subject to Questions - Posted by Bud Branstetter

Posted by Bud Branstetter on December 30, 2000 at 24:10:56:

Jim C and Ray,

I don’t get to spend the time reading all the questions ,like I did when I had a JOB, to see if the answer is through and correct.

I have had sellers back out of of subject to deals while I was typing up the land trust and other documents. I have even had them back out with a contract. I use the standard Texas form. I’ve been to the attorney to see about enforcing the contract. Sometimes you think it is worth it. I’ve learned what not to put in the contract(that it is an assumption, etc) and to spell out(disclosures, CYA’s) in the contract what I am doing. After losing 10’s of thousands in potential profits you learn.

Most motivated sellers want relief from the payments. They care less about their name on the mortgage. I don’t bother with the conventional subject to anymore. I use the PACtrust where I buy them out and have them forfeit their 10% at the end of the trust. Gatten has a nice letter that the trustee can send to the mortgage company that says they aren’t the ones making the payments or living there. I also point out that I have a mortgage broker that can get them the loan while realizing that they have effectively sold the house. I also point out that most lenders(maybe not banks) want to make the loan and don’t care about it. While I haven’t had enought time since I started using the PACtrust I have no worry about them getting 100% pass through on the old property. Why say anything more than it will still appear on your credit report?

Additional comment, Legrand’s bootcamps are over priced, and out of touch with better ways of doing things. They are good at getting you to spend more of your money with them whether or not you make any.

Re: 2 Subject to Questions - Posted by David Alexander

Posted by David Alexander on December 29, 2000 at 10:15:48:

What legally binds them is tha you have a contract and and that you get title to the property.

As far as explaining the deal, that is exactly how I explain it saying that this is the way I do business I will just take over payments, take title to their house etc, etc, but I will not get a new loan, if you can live with this then I can solve your problem.

If you go into further detail you will lose deals, confused minds say no.

My thoughts anyway, and what Randle says about the confidence thing is true… think about I’m in most of my sellers houses in shorts (jeans, upgrade on occasion), tshirts, I have a beard and long hair, and a dark complexion. If I can do it you can too.

It is how you come across and your ability to solve needs that lets you put deals together.

David Alexander

My Opinion - Posted by TRandle

Posted by TRandle on December 29, 2000 at 07:17:15:

I’m a serious analytical and have been fiscally responsible for as long as I can remember, so it was not possible for me to understand the meaning of MOTIVATED seller until I actually met one. I had heard of this subject to thingy, but I didn’t believe someone would actually just give me their house, knowing their loan would stay in place. So, I was usually offering up a L/O as an alternative to getting the deed and taking over their payments. I’m also quite sure my confidence level and approach made the subject to much less attractive.

Well, I finally met a motivated seller who didn’t care what I did as long as I handled everything and promised to handle the payments. It was so easy and she was extremely grateful. In fact, she sends US checks for a note to reimburse us for the tax and HOA liens we paid off at closing ($1,800). I no longer have any sandwich L/O (didn’t have many anyway) because I went back to the sellers and got the deed instead.

Now, to answer your questions. I use a modified “standard” contract and close at a title company. So, yes, there’s a purchase contract for me, but some folks just fill out the deed on the spot and then either find a notary or bring one with them. For your second question, try sitting down and writing out all the benefits the seller will receive such as: debt relief, improving credit, no maintenance, no management, get on with their life, etc. Turn your problems over to me and I’ll handle them. Don’t be like I was and look for the reasons why they wouldn’t consider it. Find the right sellers and it won’t be an issue. Hope that helps…

Re: My Opinion - Posted by Ray

Posted by Ray on December 29, 2000 at 07:57:27:

Tim- Please check the linked post below. I was hoping more Subject-To investors responded the other day.


Posted by eric-fl on December 26, 2000 at 19:34:19:

I was talking about the whole purchasing subject-to approach with my uncle over the weekend. It turns out he’s been attending many of the high-priced Ron LeGrand bootcamps lately. I like Ron, and have made some money using his rehab philosophies and courses.

One thing that came up was, after the seller sells to you subject to, what if he goes to qualify for a loan to buy another house? Since the house is not leased, he can’t get the typical 75%-of-rent credit that lenders typically give. Yet he still has the mortgage on his credit report, of course, and is still liable for it, thus affecting qualification ratios.

According to my Uncle, the LeGrand solution to this quandary was this: “create a document”, after the fact, wherein you create a land contract between yourself, the investor, and the original seller. This can then be used by the seller to provide documentation to the bank that he “sold” the house to you, and you are obligated for the loan. Of course, if you sign this, you have now incurred a personal liability, something we generally seek to avoid. This is also espoused as a reason why the LeGrand/SDI camp is currently leaning towards lease/options rather than subject-to deals, due to liability concerns. They have also stated that they have seen court cases where the original seller has not been able to qualify for a new house purchase, cries fowl to a judge, and contracts are disregarded in favor of the poor seller who was taken advantage of by the seasoned real estate pro. Investor loses.

My questions are: Has anyone encountered this situation? If so, what did you do about it? Is the creation of a land contract a viable solution? If so, can it be signed as an officer of the corporation or LLC entity, rather than personally, and still be accepted, generally, by a lender for new loan qualification? If not, what is the recourse?

Often, the issue of the DOS trigger is bantered about as a reason not to engage in these types of deals, in spite of it’s relative rarity in exercise. The above scenario would seem to me to be of far greater concern to an investor using this purchasing device.

Comments, thoughts welcome.

Re: My Opinion - Posted by TRandle

Posted by TRandle on December 29, 2000 at 08:40:53:

First, let me say I’ve not been doing this long (less than two years). Second, I would never agree to “create documents” to make something look like something else. Third, the sellers I’ve had on subject to deals have been able to qualify for financing on new properties by showing the lender my purchase contract. In fact, one of them received 100% credit for his original mortgage payment. What I generally tell the seller is that they may have to search for a lender, but the seller should be able to find a lender that will give them at least 75% credit.

I’m typically concerned about keeping my promises to sellers and anything that would hurt my reputation. I’m not too concerned about this issue. Between the seller’s credit report showing no lates, settlement statements, cancelled checks, whatever it takes to get it done, I’ll help the seller find a new loan. I’ve heard folks express this concern, as well as the DOS issue, but I’ve yet to hear an actual case where it was a problem. Perhaps I’m naive, but I have to work hard (on me) to not make problems where they don’t exist. I disclose as much as I can to the seller and don’t make promises (“probably”, “might”, “maybe”, etc.) about things I don’t control. Does that help?