Re: How to assign Subject To’s - Posted by JohnBoy
Posted by JohnBoy on March 23, 2002 at 15:51:17:
First of all, you’re talking about two different animals here regarding a “subject to” and a “lease option”.
When would you intend to assign anything? At the time of finding a buyer OR after placing the buyer in the property under a lease option agreement and then coming back after the fact to assign your deal to them?
If you plan to assign as soon as you found a buyer then you wouldn’t even mess with a lease option agreement. You’re not buying on a L/O so you have no L/O agreement to assign. You are buying “subject to” and you would have to assign your “subject to” agreement to your buyer.
First, I would never get involved with assigning any “subject to” deals because of all the potential risk involved to the seller. You asked how you could educate the seller so they don’t get screwed? You CAN’T! There is NO way to guarantee the seller they wouldn’t get screwed if you assigned your deal to someone else. The seller COULD get screwed BIG TIME! The seller no longer OWNS the property in a subject to deal. YOU own it! If you assign it to someone else then THEY will OWN the property. If your buyer you assigned to defaults on the payments then the seller is SCREWED!!! The loan remains in the seller’s name! But he no longer owns the property, your buyer does! The seller has NO recourse to get the property back if the buyer defaults on the payments. The lender would foreclose, the seller’s credit would be destroyed. The seller will remain liable for the loan and/or any deficiency amount owed after the lender takes the property back through foreclosure and dumps it for whatever they can get. In the end the seller would have to file BK to get of owing on the debt! This is why you shouldn’t be assigning “subject to” deals to just anyone. The ONLY way I would ever assign a deal like this is if I were assigning to another investor that I KNEW was financially stable and had the credit to back anything up with should something go wrong.
So if you’re looking to assign deals then either enter into the deal using a L/O or contract for deed to buy with and then assign that to your buyer. That way if the buyer defaults the seller has full recourse to take the property back and protect their interests. And ALWAYS, ALWAYS, ALWAYS get a signed release of liability from the seller releasing YOU from any future liability from your contract you had with the seller. Otherwise without that the seller could come back and hold you liable for the contract if you assigned it to someone else and didn’t get a release of liability. You are the one who originally entered into the contract and YOU are legally liable to the seller until all the terms and conditions of the contract have been meet. EVEN if you assign it to someone else, UNLESS, you get a release of liability signed off by the seller.
As to your other question, if you assign at the time of finding a buyer then there is no option consideration or down payment. Instead you would take whatever they had to put down as an assignment fee. They won’t be entering into a new contract between you and them, they will be taking over the actual contract you have with the seller. So you would just take whatever they had as an assignment fee and hand them your contract you have with the seller. Basically they are buying your existing contract you already have with the seller.
If you were to enter into a separate agreement where you were going to place the buyer into the property first, then come back later after a month or so and try to assign your contract you have with the seller, then you would charge your assignment fee and let the buyer take over your contract and then sign a mutual release between each other releasing each of you from any further liability on your contract you had between each other. So any monies paid up until that time would be non-refundable that you would retain for yourself. The buyer has no problem with this because they are getting a much BETTER deal by being able to take over your contract you have with the seller, since your contract with the seller has much more favorable terms like, more years on the contract, lower monthly payments, and a lower purchase price that will save your buyer THOUSANDS by being able to take over your contract with the seller VS. the separate contract they had with you.