Please advise...take deed or record opt. - Posted by JEN

Posted by John Little on May 26, 2011 at 10:28:20:

Margret, This new law went into effect in CA in 2010, several years after I sold my last CA property. It confirms what I have said all along, that there was no sale and no transfer fee required until that time in that state. There is no such law in any state in which I currently do business.

Actually, in reading the CA law I can see ways to get around it. For instance, it says “transfer of 50% or more to a Buyer”. What happens if the Seller transfers 45% to a Buyer (RB), and later transfers 45% to me (an Investor, NOT a Buyer)? Just wondering…

Please advise…take deed or record opt. - Posted by JEN

Posted by JEN on May 17, 2011 at 20:45:57:

I have the option to take over payments on an investment house from people who do not live in the property. They have great credit I believe due to the lifestyle they live. I know that they have been making payments on a vacant property for several months now. Ten years owed on the mortgage and the mortgage is current.
Should I transfer the deed and upset a low rate lender by doing so?
Should I transfer to a trust then change beneficial interest?
Or should I just record an affadavit of memorandum at the court house and get a limited poa for the property?
Or record the option only?
I am basically taking over mortgage payments on the home, and wasn’t sure the best route to take.
Thanks for any advice.

Re: Please advise…take deed or record opt. - Posted by Ken

Posted by Ken on May 20, 2011 at 18:33:46:

I would take the deed into my LLC.I have been challenged twice by banks on the DOS.The first time I asked whether they wanted a check for the payment or the keys,they wanted the check,I sent it ,rehabbed and sold as was the original plan.Second time Made up back payments,rehabbed and rented,bank sent letter,my partner called them and they speak to him now concerning the loan,we have owned about 5 years.As far as insurance I would just cancel sellers policy and get my own.I have never seen a bank actually pursue anything more than a threat.With 10 years to payoff it is now paying down on principle and I would keep it that way.Also you need to get the deed to maintain control,anything other than that and you will not be in control and do not be surprised if they find an excuse not to give it to you at that time

Re: Please advise…take deed or record opt. - Posted by Bill H

Posted by Bill H on May 18, 2011 at 12:49:58:

All of the means you mentioned in you post have the potential problem of causing the due-on-sale clause to be enforced.

YES, I know all the ways you mentions are used everyday…HOWEVER…if the lender is so inclined, they can all be enforced against. This ony adds to the cost of doing business as there really is no Due-on-Sale jail, just the matter of bond ($$$ to pay off the mortgage) to stay free.

If there is only ten years left, why not re-finance. Today’s mortgages rates are very low…unless…you happen to have a low credit number.

Then, if your credit is good, simply ask the lender. The worst they cand do is asy NO, and that is NOT the end of the world.

Sometimes trying to circumvent things are more trouble then they are worth. Be up-front and step up and complete the deal.

Personally, I would just refinance, going through escrow complete with title report, etc., and be done with it.

Re: Please advise…take deed or record opt. - Posted by jen

Posted by jen on May 20, 2011 at 19:00:07:

So if I do take the deed. How can the bank refuse to give me anything? I am paying down the equity.

Re: Please advise…take deed or record opt. - Posted by jen

Posted by jen on May 19, 2011 at 13:07:07:

Ok, so if it is called dos…I don’t have a back up plan for me coming up with the funds. Even if funds were available…this is not the property I would tie them up with.
Sellers however do have the ability to refinance if needed.
Should I do a long term lease along with a separate option on the property? Record the lease and don’t record the option?
Should I do the land trust?
Back to square one with the best way to pursue this. Is it worth the time…250-300/mo cash flow is worth it to me anyhow.
So yes I would like to pursue getting this done.
If getting the deed is not the best route and I cannot get the financing then what is?

Re: Please advise…take deed or record opt. - Posted by jen

Posted by jen on May 18, 2011 at 15:03:34:

Can’t get financing on the home due to credit so that is not an option. The house doesn’t have enough equity for any bank to be pursuing taking it. Just a matter of fact opinion on the situation. It is a rental and looks it and amount owed against it is at its value. Only positive thing of it is that it cash flows.

Re: Please advise…take deed or record opt. - Posted by Ken

Posted by Ken on May 20, 2011 at 20:21:15:

Not sure what you are concerned about the bank not giving you.They won’t give you any info about the account but maybe you can get set up on line with the seller ahead of time and get info that way or find out ahead of time what form the bank uses for the seller to sign to give you access to there account and then get the owner to sign it keeping it mind sometimes the bank will accept that form for 60 days so you may need to change the date in the future to keep it fresh

Cash flow - Posted by Kristine-CA

Posted by Kristine-CA on May 19, 2011 at 16:00:57:

Jen: are you sure it cash flows. If you pay taxes, insurance, the
monthly mortgage and have a month of vacancy and pay for a repair or
two does it still cash flow? Can you pay the seller’s mortgage for a
month or two if your tenant or tenant/buyer doesn’t pay?

I don’t think you need to worry about how to pursue it but why it’s a
good deal, or if it’s a deal at all. Think carefully before getting sellers
with good credit involved in a deal where you don’t have any capital
reserves.

Re: Please advise…take deed or record opt. - Posted by Bill H

Posted by Bill H on May 19, 2011 at 12:55:18:

Jen: The house doesn’t have enough equity for any bank to be pursuing taking it…JUST HOW do you KNOW this? Are you privy to the lender’s policies and procedures.

Do not beleive all the stories you hear about lenders not wanting and not taking property , equity or not. It is entirely up to them and their policies…NOT you and I and the Internet GURU’s.

Read what Kristine has said…have a plan B if it happens. And, it can.

Is the cash flow worth all the time, effort, energy,resources, etc…to make it a viable deal?

If you take it and they exercise the DOS and you lt it go back to the lender…what recourse against you does the prior owner have? Again…What is your Plan B?

DOS and “not enough equity” - Posted by Kristine-CA

Posted by Kristine-CA on May 18, 2011 at 20:44:21:

Jen: not sure how much experience you have with taking properties
subject-to their existing financing, but your comment regarding the
bank not “pursuing taking it” doesn’t reflect the reality of how the DOS
works in real life. The loan likely has a DOS clause (Due on Sale). The
various advice that is offered on the RE message boards about lenders
"just being happy" that someone is sending a check sounds nice, but is
not really accurate. For the most part, done correctly with certain
precautions, taking a property subject-2 doesn’t have to trigger the
DOS, but sometimes it CAN and it DOES. In other words, not likely,
but possible. Doesn’t have anything to do with equity or whether or
not the property is upside down, fire damaged or in a horrible market.
It has to do with internal policies at the lender, which we are not privy
to. Some lenders have random and/or periodic title searches to see if
any of their properties have transferred title. Ask anyone who it’s
happened to. Sometimes they will work with the new owner and allow a
loan assumption, sometimes not.

I suggest planning for how you would deal with a possible DOS letter
from the lender and how you would deal with the seller, whom you
made an agreement with to take over their payments. In other words,
have a Plan B.

Re: Cash flow - Posted by jen

Posted by jen on May 19, 2011 at 16:05:44:

I do have the reserves available to have this make sense for a few months vacancy or any needed repairs. Which is the best way to structure this?

Re: DOS and “not enough equity” - Posted by Chris in FL

Posted by Chris in FL on May 22, 2011 at 09:45:33:

I have only done a few subject to deals, but I know many investors that have done them. It is very, very rare for a bank to foreclose because of a due on sale clause if the payments are current and being made, especially in this environment where banks are overrun with foreclosures and late pays. That being said, the chance still exists. My advice: talk to the seller, explain the risks of DOS (maybe they already know), let them know their credit will be on the hook and you will not be, and if they are still okay with it, proceed. You can always promise seller that, if bank pursues DOS, you will deed the house back to the seller, and they can try to patch things up with the lender (and I have no idea whether that would stand a chance of working or not). If you are positive $250-300/month, after all expenses, and the seller is agreeable, my opinion is take the deal. Make all payments on time, and hope lightning doesn’t strike your deal… If it does, all you do is walk away (and you let the seller know about that risk on the front end - get that in writing).

Best wishes,
Chris in FL

Re: DOS and “not enough equity” - Posted by Jerry Donovan

Posted by Jerry Donovan on May 20, 2011 at 07:52:22:

I had an experience over the DOS clause with Countrywide. I bought a California property subject 2, but used a land trust. Countrywide notified me that I was in violation of the DOS clause. This was via a telephone call. I challenged the agent on it and finally got a call back two weeks later that they had reviewed it with their legal department, and that I was right and that the use of a land trust precluded them from being able to exercise that clause as a land trust is exempt. This is a true story and it happened in 2002.

Re: Cash flow - Posted by jimi

Posted by jimi on May 20, 2011 at 07:56:31:

If you are solely pursuing the cash flow, then you may want to lease the property, and then sub-lease to an occupant tenant. Pocket the difference between the the two lease payments.

Re: DOS and “not enough equity” - Posted by John Little

Posted by John Little on May 22, 2011 at 10:41:06:

or just use a land trust or EHT and be exempt from the DOS.

Re: DOS and “not enough equity” - Posted by jen

Posted by jen on May 20, 2011 at 09:15:58:

Jerry,
Do you advise transferring this to a land trust then or are you against it? Also if it was transferred to a land trust…why did they call you instead of the previous owners?
Did the bank ask to see proof of the beneficiaries?
Wasn’t the fact that they called you and you argued with them an sort of admission that you are in fact the owner?
How did you set up insurance coverage on the property?
The bank I am dealing with is bank of america.
Thanks for all your feedback.

Re: Cash flow - Posted by jen

Posted by jen on May 20, 2011 at 09:04:34:

Cash flow is the objective now. Free and clear property is the objective in 10 years. Lease with an option is the way I can go with this. Should I also record an affadavit of memorandum?

Re: DOS and “not enough equity” - Posted by Chris in FL

Posted by Chris in FL on May 22, 2011 at 10:58:53:

All entitled to their opinion… IMHO, land trust or EHT attempt to hide ownership - make it less visible or less obvious. They do not “exempt from DOS”.

Best wishes,
Chris in FL

Re: DOS and “not enough equity” - Posted by Bill H

Posted by Bill H on May 20, 2011 at 15:21:33:

Jen: PLEASE read Jerry’s post VERY carefully…he says I held title and I transfreed to a land trust…that is legal and protected by Garn St Germain…

Garn St Germain lists, as I remember, 10 different things you cand do if YOU own the property and are putting it into a trust. Result of a divorce, etc., are also protected. Google Garn St Germain and read up on it.

If you are taking title SUBJECT-TO, and you are here,then that is an entirely different ball game and is subject to the DOS.

Questions you are now asking fall in the real of legal advice and you are not going to get that here.

Take the ideas and things into consideratin, talk with a good Real Estate Attorney and make your decision.

Looks like you are trying to figure out how to make an extra $250-300 per month with NO RISK…that simply will not happen.

NO RISK—NO REWARD.

Again, see a good real estate attorney, make your decision and move on.