Posted by B.L.Renfrow on March 27, 2000 at 10:27:43:
Doe (is your first name John?)
Can you do it? Sure
Is it a good idea? Probably not.
Do liens have anything to do with it? Uh…YES!
First, sandwich L/Os are a versatile tool. I love them. They’re a great way to get into a property with no, or little, money out of pocket and the returns can be excellent.
But (and pay close attention here) they are NOT necessarily simple, and they are NOT without risk…sometimes significant risk.
If you know what you’re doing and how you’ll deal with any problems, many find the level of risk acceptable. But if not, you can lose your shirt in a hurry.
Pre-foreclosures and sandwich L/Os can be a risky combination. Since the seller is in financial trouble, LIENS can be a major problem. If you put a T/Ber in the property, and they decide to exercise down the road, what do you think happens if the seller can’t transfer title to you, or there are a bunch of liens attached? You are in default with your T/Ber, that’s what, and at best, it’s going to cost you money - from your pocket - to pay off the liens.
Then, there’s the problem of making sure the underlying mortgage is paid, and the insurance is kept current. Of course, there are ways of dealing with these issues, but you have to be aware of them.
Finally, if you have to put in cash to bring the loan(s) current, that sort of defeats one of the primary advantages of the sandwich L/O - no cash out of pocket.
A better strategy for preforeclosures is to take title to the property. That can be accomplished via a subject-to deal, land trust, PAC trust and so forth.
I like sandwich L/Os in situations where the seller is motivated, but not necessarily by financial distress. They are helpful when I can get a property under contract for less than FMV, especially where the seller has little or no equity, so they’re not looking for cash, but they just want to be rid of the property.
I don’t bring this up to discourage you. However, if you’re going to do preforeclosures, it’s to your advantage to read and learn a bit more before throwing yourself out in the marketplace. You might want to also consider one of the lease option courses available right on this site.
All of the potential problems I mentioned can be dealt with, but you MUST know how to protect yourself, as well as your prospective T/Bers.