Posted by Jeb on December 27, 2000 at 02:54:47:
Bill Gatten seems to have this covered with his PACTrust. Seller receives 100% credit for rent payments.
question re: seller re-qualifying and subject-to - Posted by eric-fl
Posted by eric-fl on December 26, 2000 at 19:34:19:
I was talking about the whole purchasing subject-to approach with my uncle over the weekend. It turns out he’s been attending many of the high-priced Ron LeGrand bootcamps lately. I like Ron, and have made some money using his rehab philosophies and courses.
One thing that came up was, after the seller sells to you subject to, what if he goes to qualify for a loan to buy another house? Since the house is not leased, he can’t get the typical 75%-of-rent credit that lenders typically give. Yet he still has the mortgage on his credit report, of course, and is still liable for it, thus affecting qualification ratios.
According to my Uncle, the LeGrand solution to this quandary was this: “create a document”, after the fact, wherein you create a land contract between yourself, the investor, and the original seller. This can then be used by the seller to provide documentation to the bank that he “sold” the house to you, and you are obligated for the loan. Of course, if you sign this, you have now incurred a personal liability, something we generally seek to avoid. This is also espoused as a reason why the LeGrand/SDI camp is currently leaning towards lease/options rather than subject-to deals, due to liability concerns. They have also stated that they have seen court cases where the original seller has not been able to qualify for a new house purchase, cries fowl to a judge, and contracts are disregarded in favor of the poor seller who was taken advantage of by the seasoned real estate pro. Investor loses.
My questions are: Has anyone encountered this situation? If so, what did you do about it? Is the creation of a land contract a viable solution? If so, can it be signed as an officer of the corporation or LLC entity, rather than personally, and still be accepted, generally, by a lender for new loan qualification? If not, what is the recourse?
Often, the issue of the DOS trigger is bantered about as a reason not to engage in these types of deals, in spite of it’s relative rarity in exercise. The above scenario would seem to me to be of far greater concern to an investor using this purchasing device.
Comments, thoughts welcome.