Heather:
I see no need to record a performance mortgage to secure you equity in the property that your are purchasing “subject to” the existing financing. Presumably you will be getting a deed from the seller that is “subject to” that financing. You will have legal title to the property. The danger of course is the infamous “DOS” due on sale clause which the lender might call due. Recording a mortgage won’t necessarily protect you from that happening.
As for recording a performance mortgage to secure you interest where you have an OPTION that is a different story. Here they are valid concens over the seller further encumbering the property with more debt or simply not making the mortgage payments that are due on the existing loans against the property thereby jeopordizing your option. A performance mortgage or a simply mortgage securing your option position would alert you to those events unfolding.
Posted by Heather T on February 03, 2000 at 23:33:38:
I have a house I am going to take subject to. Should I record a performance mortgage to protect my interest in this deal? And if so what is the procedure? I never done a deal this way. I have only L/O property, but never subject to. I’ve been told to do this in L/O also. Please Help.
And Don’t Forget the Wrap - Posted by JohnWe (NoCA)
Posted by JohnWe (NoCA) on February 04, 2000 at 12:57:32:
You’ve already got some great answers from some great people, but I wanted to add my 2 cents. Just like you’d like to record one of these things for a L/O, the same goes for a wrap.
One thing that’s not really a subject-to, but serves the same purpose, is a mirror-wrap, where the seller sells to you, probably on an ILC, and you make payments to him that exactly mirror his underlying mortgage including balance due, term left, and interest rate. In this scenario, you definitely want to record a performance mortgage, because if deadbeat doesn’t make his mortgage, you’ve got problems. I’d also recommend a loan servicing company to facilitate the whole thing.
Posted by Stacy (AZ) on February 03, 2000 at 23:47:59:
A performance mortgage isn’t needed, since you’ll own the house when it’s deeded to you (or your trust). There’s really nothing left for the seller to perform, once this happens. Now, the seller may want one from you to try and protect his credit, so he could gain title if you defaulted on his mortgage payments. But, I wouldn’t suggest it to him if he’s OK with deeding to you without it. We both know you’re going to make his payments anyway, don’t we?
I had to give a performance deed of trust a few months ago to satisfy a seller (a mortgage broker) in a subject-to transaction. But, only because he wouldn’t do the deal without some form of security for his perfect credit.
BUT! REMEMBER! THE DOS CLAUSE WILL EAT YOU IF YOU DO A SUBJECT-TO DEAL! (smile)