agressive purchasing with due on sale clause - Posted by George

Real Estate Investing
1

Posted by George on February 02, 2001 at 14:44:42:

Let me see if I can answer the question. Let me have an example:

  1. You buy a property.

  2. You get the deed subject to the mortgage.

  3. Then, you resale the property.

When resaling you have a few options that pay off the mortgage. These come to mind:

  1. You new buyer gets a new financing. This financing pays off the old mortgage.

  2. New buyer gets the title subject to the mortgage, waits about a year or before, then he/she refinances as owner occupied, the old mortgage is paid off.

  3. Just L/O the property for about $3000-$5000 down (it depends on the property), you can refinance right away, or wait about a year. You pay off the mortgage.

  4. Or when the L/O is executed, then the new buyer gets a loan, the morgage is pay off.

  5. You sell the property on a wraparound contract. Collect some down payment (about the same than the L/O) , a litle extra cash on the payments, then when the buyer takes title, he/she gets a new loan. This and the L/O situation are ideal if you want to have a monthly cash flow cash flow. I prefer to flip the property ASAP…\

I hope it helps

2

agressive purchasing with due on sale clause - Posted by George

Posted by George on January 26, 2001 at 17:32:41:

I have a question, the best way is by using a hypothetical example:

  1. You find a home that is worth $100,000
  2. The owner, who lives out of town, is behind payments($5000 total).
  3. There is a mortgage for $60,000
  4. The owner is willing to let it go for the balance.
  5. He/she is willing to deed you the property.
  6. The bad news…a due on sale clause.
  7. The good news, you know you can sell the property VERY fast for $85,000 (profit $25,000-$15000 back payments=$20,000 profit)

My questions…

  1. How fast the bank will find out about the transfer of the deed to me?
  2. What if I sell the house BEFORE the bank find out? Buyer gets a new loan for $80,000, he gives me $5,000 down… (nice potential profit)

This is just an example, not a real situation.

Thanks,

George

3

Yes, and Yes… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on January 26, 2001 at 22:21:59:

George:
Lets tackle some of your issues:

  1. How fast the bank will find out about the transfer of the deed to me?

They may never find out, then again they might find out soon after you take title. So having a contingency plan in place (or as they say an “exit stratergy”) makes sense to move this property fast and to get that pesky lender paid off.

  1. What if I sell the house BEFORE the bank find out? Buyer gets a new loan for $80,000, he gives me $5,000 down… (nice potential profit)

If you can re-sell the property that you just acquired FAST, then thats great. However many more traditional and so called “sub prime” lenders are starting to Balk at financing a property that has been owned by the current seller for less than 6 months (what is sometimes referred to as “seasoning of ownership”).

However, Offering the property for sale and also offering to OWNER FINANCE that sale can typically avoid these concerns (if done properly). You sell, you take back a seller financed mortgage, and then you dispose of this seller financed mortgage, converting it to cash.

Hope this helps…

Michael Morrongiello

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Re: Yes, and Yes… - Posted by George

Posted by George on January 27, 2001 at 02:12:12:

Thank you very much for your opinion. It is very useful!!

Thanks,

George

5

Re: Yes, and Yes… - Posted by jason hardy

Posted by jason hardy on February 02, 2001 at 11:30:18:

how do you “dispose of a seller financed mortgage and turn it into cash” other than having the buyer refinance and pay it off???

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Re: Yes, and Yes…ONE MORE - Posted by George

Posted by George on February 02, 2001 at 14:48:38:

I did not realize you were asking another post, but let me answer this question

-how do you “dispose of a seller financed mortgage and turn it into cash” -

I am not an expert in selling contracts, but I think he is refering to sell the contract to an investor