Pulling Equity out of Sub2 - Posted by scott in the burgh

Posted by Jim FL on September 14, 2004 at 16:43:32:

John,
I followed you, in my response to the other post.
The thing is, there is no need for the sellers to retain a copy of the trust.
When they assign it away, they don’t own it, which all happens at close.
So, the only person/people/entity that gets a copy of the trust, is the investor.

When I close with a seller, they are left with a copy of the purchase agreement, and a HUD-1, that’s it.
They want a copy of the deed, they can go to the recorders office and BUY a registered/certified/stamped copy…AFTER it is recorded.

Take care,
Jim FL

Pulling Equity out of Sub2 - Posted by scott in the burgh

Posted by scott in the burgh on September 13, 2004 at 07:56:40:

hi guys-

have a sub2 deal that has not sold retail, so I have someone who is interested in Lease Option/Rent to Own. I was thinking of doing this at the beginning but wanted to see if I could sell quick for retail. My question is, has anyone had any luck pulling out the equity in their sub2 deals up front instead of waiting for the back end.

Details are:

Loan Balance: 105,500
Amt we paid to bring current: 12,500
Montly payments: 1058
House should appraise for:160,000

Trying this with the tenant:

8-10K option money.
1300 mo. rent, with 400 credit towards purchase

In the above scenario, if I do a 90% equity loan, i can pull out about 35K cash. I really would want this money now to do other deals. I have alot of pre-foreclosure candidates but need the cash to make loans current.

Has anyone done this and do lenders care about the seasoning issues on the equity loans like they do straight up purchases.

thanks,
scott in the burgh

Re: Pulling Equity out of Sub2 - Posted by Wm-PA

Posted by Wm-PA on September 13, 2004 at 15:29:56:

Scott,

I have done 3 “Sub2” and with taking out the equity and am in the process of a fourth one right now. I have had no problem at all with seasoning, or the current financing in someone elses name.

How long is your L/O term for your T/B ?

Re: Pulling Equity out of Sub2 - Posted by Russ Sims

Posted by Russ Sims on September 13, 2004 at 12:46:35:

John: We have pulled out equity on several of our subject tos. Find yourself a good, and I mean really good mortgage broker. He/she should be able to direct you to lenders that will meet your needs. With us, sometimes seasoning has been an issue. Lenders wanted us on title for 6 months or in some cases a year. In one case seasoning was no issue at all, but the interest rate was kind of high. Interest will be higher still if you take cash out. If you put the property in a trust, some lenders will want it quit claimed out to you before closing…other lenders won’t care. It’s goofey: that’s why you really need a good mortgage professional.

I’d be really leary about trying to get 8-10K option money, unless your market is much hotter than mine.
Russ

Re: Pulling Equity out of Sub2 - Posted by John

Posted by John on September 13, 2004 at 11:00:59:

Scott,

I can not tell if you understand that a subject-to deal means that the
property has existing financing and such financing is likely not in your
name. This also implies the title is not fully in your name. Hence you
can not obtain financing secured by the property.

If you refinancing or otherwise get financing on the deal you have
pretty much finished the subject-to and are now just the owner of an
investment property with the old lender being paid off. The title will be
fully vested in your name with the new liens appearing.

Is this what you are thinking?

John

Re: Pulling Equity out of Sub2 - Posted by John-Fl

Posted by John-Fl on September 13, 2004 at 15:51:32:

Have you had to sign personally for these equity loans or have you been able to have a corp sign for the funds?

Re: Pulling Equity out of Sub2 - Posted by scott in the burgh

Posted by scott in the burgh on September 13, 2004 at 13:22:12:

russ-

i did get tenant buyer to agree to the 10K option money and 1150 per month rent w/ a 250 rent credit. Trying to get it signed up tomorrow. do you remember who you used to get cash out with no seasoning? same lender for title in land trust?

do you typically have them write their rent check to yourself/company or trustee?
scott

Re: Pulling Equity out of Sub2 - Posted by John-Fl

Posted by John-Fl on September 13, 2004 at 15:00:08:

“This also implies the title is not fully in your name.”

You are wrong. The title IS fully in your name. You’ve taken title subject to the existing financing. The deed and mortgage are 2 different things. Deed was conveyed making you the owner. The mortgage stayed keeping the sellers on the line for the mortgage.

You are be able to get a 2nd mortgage on the property even if the 1st isn’t in your name. No problemo.

Re: Pulling Equity out of Sub2 - Posted by Wm-Pa

Posted by Wm-Pa on September 14, 2004 at 17:35:43:

John,

I personally signed these loans, the deeds are in my name not an LLC or Corp.

Re: Pulling Equity out of Sub2 - Posted by Russ Sims

Posted by Russ Sims on September 13, 2004 at 14:21:00:

Congrats on finding a good tenant/buyer prospect. For me, at least, finding someone with that kind of dough to pay up front is rare!

The main lenders we work with are Green Point, Statin Island Bank (SIB), World Savings, and Washington Mutual. I can’t tell you which lenders offered which loans because my office staff (wife) is not in today and I would need to defer to her for that info (ignorance is bliss). BUt even if I could tell you, it wouldn’t make much difference becasue lenders change their programs like I change my kitty box…every few days, it seems. Maybe you should enquire with the experts on the finance forum?
Good luck!

Re: Pulling Equity out of Sub2 - Posted by John

Posted by John on September 13, 2004 at 16:45:51:

If you read the documents closely I am not so sure you will find the
title the way you think it is.

The technically correct way to do a subject to deal is to move the
property into a living trust or equivalent. The title is a bundle of rights.
The rights can be separated so that the buyer who is purchasing
subject-to receives the benefits of any change in value. The legal title
holder is still the original owner/their living trust.

I say this because you want to minimize the risk of a transfer of legal
title so the lender can not complain. You could take the route of they
are stupid/lazy and make the transfer with the expectation of ‘getting
away with it’. A lawyer would not suggest such a time and would
recommend the procedure as a owner has the legal right to move the
ownership to a trust.

So, the title is not FULLY in your name. Even if you think it is, you have
shown it can not be fully in your name when there is a prior lien on the
property.

We are splitting hairs.

More importantly is no new lender will lend on the place when you do
not have clean title. You definitely do not have clean title. If you want
to refinance and pay off the prior debt that is fine. You no longer have
a subject to deal as the lien from that debt is gone as a result of the
refinancing.

John

Ah, No… - Posted by Jim FL

Posted by Jim FL on September 14, 2004 at 15:43:09:

John,
Nope, dude, your are wrong.
When folks here on CRE mention sub2 buying, this is basically what they mean.
The investor BUYS the property from the seller, taking FULL OWNERSHIP(Title) and leaving the existing financing in place.
Who’s name is on the loan has NOTHING to do with who is on title.
Now, the most common method taught/talked about here and other places, is to have the seller DEED the property into a LAND TRUST (not living trust).
At this point, the TRUSTEE of the trust (who should be someone you trust, or yourself, or another entity like a corp. or LLC) holds title of the property, on behalf of the trust.
The seller still at this point, owns the trust, if done as is commonly mentioned here, and the trust owns the house.
Now, the investor then has the seller ‘assign the beneficial interest’ for the trust to them.
This is the OWNERSHIP of the trust, which owns the house.
So, a trust owns the house, and the investor owns the trust.
The loan remains in the sellers name, and the investor maintains and manages that loan secured by the real estate they now own, until it is paid off…one way or another.

Clean title?
That made me giggle.
When I buy a property sub2, I check title.
If its clear, then we proceed, sometimes with title insurance, sometimes not, depending on the situation at hand.
Once title has transferred to the trust/trustee, it remains in the trust, where nothing personal from the new owner(investor), or the PREVIOUS owner(the seller) can attach to it.
So actually, holding property in a land trust actually helps keep title clean.

Because the new owner(the investor) OWNS the house, they can barrower against it, if they can find a lender who will make a loan.
Sure, there are issues with that sometimes, like seasoning, or how title will be held if the lender makes a loan etc…but all can be worked out, as long as the investor qualifies and there is equity substantial enough to justify the deal/loan.

So, sorry, hate stepping on people’s toes, but when I see incorrect advice/info posted in a public forum, I cannot just let it slide.

Have a nice day,
Jim FL

Re: Ah, No… - Posted by John-Fl

Posted by John-Fl on September 14, 2004 at 16:17:40:

Thanks Jim.

I knew your course and the other gazillion I have wouldn’t steer me wrong.

Hey since you talked about land trusts in this post what are your thoughts on the way another sub 2’er has mentioned? Whereby he sets up a trust for himself without any mention of the seller and has the property deeded to this trust therefore sidestepping the need to have the “assignment of bene” signed. I kind of like it.

Re: Ah, No… - Posted by Jim FL

Posted by Jim FL on September 14, 2004 at 16:33:38:

John,
I think the mentioned method has merit, for the sake of making things simple.
However, reality has dictated that no matter how well a seller understands what is before them, they still don’t really care as long as what they sign cures their pain.

I prefer to have the assignment route, for one main reason.
When you buy a property sub2, the way you mentioned, this would make a transfer tax due at recording of the deed.
Why?
Because the only way, as I understand it, a transfer tax is not due when transferring property to a land trust (state laws vary of course, this is based on mine), is when the trust is owned by the grantor. (in other words, transferring to a trust for ones own benefit does not require a RE transfer tax to be paid when recording.)
Which, in the case of the assignment, when the deed was executed, was the case.
The assignment of ben. int. is the REAL transaction in my opinion, and since this is a personal property transaction, no real estate transfer tax is due.
I buy land trusts, not houses…make sense?

One other smaller benefit, which some disagree on, but I have yet to enounter as an issue, is that if for some unknown reason the lender were to make noise, a copy of the trust showing the original barrower as ben. int. should and has shut them up.
No need to show them the PRIVATE assignment of ben. int, if all they ask for is a copy of the trust.
Even though technically you can tell lenders to pound sand when asking for a copy of your trust, sometimes it might just be easier to make them go away.

Disclaimer though, I’ve only done this a couple of times, a long time ago.
One lender sent a letter wanting to know why the title was transferred and to send a copy of the trust.
Not knowing any better, sometime back, a long time actually, I sent in a copy of the trust…they asked for it, right?
Never heard another word from the lender, and sold the house 3 years later for a nice profit.

So, sure, keeping the beneficial assignment in there is a good idea…IMHO.

But hey, what do I know? Only been at this a few years…both after and even before some of those others you mentioned. :slight_smile:
Oh, and I STILL post here, and will as long as JP and Terry will have me…this is where I began too ya know!

Take care,
Jim FL

Re: Ah, No… - Posted by John-Fl

Posted by John-Fl on September 14, 2004 at 16:23:17:

Not sure if I was clear in the last post. I read it and felt it was incomplete.

He talks about setting up a trust with his usual trustee (self, corp, attorney, someone he trusts) and gives himself or entity beneficial interest in the trust.

Since the owner was never mentioned as bene in the trust docs there isn’t a need to have the assignment of bene signed nor is there a need for them to retain a copy of the trust doc’s. It is the investors trust.

What are your thoughts on this?