Posted by Sammy on September 23, 2003 at 18:17:06:
I was only trying to make the point that doing lots of subject to deals can be VERY dangerous, especially for those with limited resources i.e. 99.9% of the readers of this forum. What happens when 2, 3, 4 or more of your properties have the loans called due in a short period of time? Chances are you won’t be able to refi them all, then what? The majority of readers of this forum would be in a very bad spot. Even if you take a property subject to a loan with a balance that is only 80% of what the property is worth, unless you are able to refi the property very quickly you can get into a lot of trouble. You can’t even get a bridge loan from a HML with 20% equity, they just won’t do it. So again I’m just trying to point out the reality of doing sub 2 deals since you appear to be new at it (you said you’ve only done 1 so far). It’s tempting to rush out and do a ton of sub 2 deals because they are so easy to find, but you’re taking a big gamble unless you have significant resources to back up your actions. Do some research and see what happens to investors who do a bunch of subject 2 deals and then get into trouble i.e. get a bunch of loans called due, stop making the payments for one reason or another. They go to jail for fraud half the time, even if your intentions were good.
Unfortunately that event was a boon for the insurance cos. They got to radically raise their rates to cover their massive stock market investment losses and blame it on someone / something else.
Lyal
Posted by eric-fl on September 23, 2003 at 22:42:32:
Sammy:
Per your statement above, wherein you state that investors “who do a bunch” of subject 2 deals get into trouble, when the loans are called due, and they then go to jail:
Please provide 3 examples of the scenario you described above. Just 3 names, of 3 real investors, anywhere in the country, that you can point to that this has happened to. If you can do that, I will immediately halt my investing activities, and re-adjust my plans to never include a subject-to deal. And please don’t tell me to “do my own homework”, because I’ve done research on this, and only been able to find anecdotal evidence of one example, of an unnamed investor, on a hearsay basis, that was shaky at best.
Here’s one (sort of) … and another (kinda) - Posted by Hank FL
Posted by Hank FL on September 23, 2003 at 23:03:54:
Remember about 1 1/2 - 2 years ago when one of the elder posters here from LA said he knows a guy that did a bunch of sub2s when the market turned after the oil boom in the 90’s ?
This guy was doing 1 or 2 a day for awhile. The market kept sinking and he couldn’t fill the houses. There were many angry sellers that screamed to the press and local pols.
He was nailed for mail fraud.
That’s how the story went – off the top of my head.
I know, I know, land trusts are not recognized in LA.
Then there’s the lady from OH that stiffed a bunch of folks and burned many a bridge. There was talk in a local paper about a prosecution.
I suspect that in the future, as markets cool and more and more investors do more and more sub2s, politicians will find ways to go after those sleazy landlords when their empires go south and multiple default scenarios occur.
District Attorneys are pols, no ?
I’m not against sub2s now, I’m just recalling things and putting it down here.
Re: Here’s one (sort of) … and another (kinda) - Posted by eric-fl
Posted by eric-fl on September 24, 2003 at 09:23:22:
Yep, I sure do remember the L.A. story, as it were, and the OH one rings a distant bell. Let’s take out the OH one though, since if my recollection is correct, that was an equity-skimming situation. Obviously, if someone is collecting rents with no intention of paying the underlying loans, that’s fraudulent, regardless of the acquisition method. As for the L.A. story, I do remember the posts about it, but what sticks out about it, is that no one ever put a name to our ruined investor. That makes it suspect, at least to me, at that point. Probably something happened to somebody, but how much is exaggerated in the retelling? And, as always, if you get in over your head on multiple-negative cash-flowing properties, you’ll eventually run into problems, regardless of acqusition method.
I know you said you’re not against sub-2’s, and I’m not getting on you specifically. My challenge to Sammy’s post, was to cite 3 specific examples, of people who’d had multiple loans called due, couldn’t refi, got foreclosed on, and went to jail. So far, no takers. That’s different than the market going south. The main difference being, whether the bank will accept payment or not.
Posted by Sammy on September 24, 2003 at 08:39:06:
What happens when the market drops 20%, and the investor can’t even rent the properties at breakeven? What happens when the investor has 10 or 15 of these going at once and 3 loans get called due in a short period of time? 99.9% of the readers of this forum would go spinning out of control at that point, and the scary part is that most of them don’t even consider the downsides of taking properties sub2, they only hear the “gurus” talking about how good they are. The subject 2 strategy has been around forever, it’s only during the past 5-10 years that it’s become so popular - due to the strong housing market.