Have you ever negotiated a subject to? This is a way a lot of investors take over properties with no money down. They speak with a seller and without encumbering the property with a new loan, they take the payments over. Usually this is done in conjunction with bringing the loan that is on the property current (as the seller motivation in the first place is to walk away or deal with you the investor because the seller is in foreclosure). Next is speaking to the junior lien holders about discounting any secondary financing and paying that off, and then keeping the first loan on the property in the seller's name for a period of time.
Is this legal? If you would look on a HUD-1 form, you will see a line item that in essence, asks if the buyer is going to be taking over the existing financing. If this isn't legal, why is that line there?
In this day and time period, we have a lot of properties that could be taken back by lenders. Do they want them back? Not really. They make it hard to negotiate a short sale, when the earlier OK from them would help the bank get the property off of their books. Why? I don't know! Why would they want another non-performing asset to report to their stock holders? Why would they want to wait, tie up more of their money, and in the end only get the same deal months later? Banks are puzzling, sometimes, and perhaps since there are so many more files/accounts in pre-foreclosure, they are hiring off of the street or hiring inexperienced people straight out of Cohen Brown training.
Investors can use this method of "subject to financing" with regularity. The investor, though, has to be forthright and pay the payments. There are two ways to pay the bank: Have the seller keep paying the bank with the money you send them (iffy) or you the investor pay the bank. Actually, there are more ways: Set up an Escrow Company to hold funds and pay the monthly payment. This will cost a small percentage, but would at least have credibility with the bank, with you, and with the buyer/seller. The buyer can pay the small percentage, which would be wrapped up in the payment to you (now you are the buyer's bank), since the payment may be higher, anyway, if the buyer is NOT you - and the Escrow can send the bank their payment, you your payment, and keep their small percentage fee. Everyone should be happy, yes?
Can the seller still face foreclosure? that depends on you. If you don't pay the bank, the seller's credit will be affected and they will be the ones going into foreclosure. And then the seller will be the one who is coming to look for you. Hopefully, the new buyer, whether it was you or someone you sold the house to, will soon refinance and pay off the old mortgage. Then you, who bought low (took over the payments and gave the seller moving money), and sold low (at a profit) will still walk away with a substantial sum.
Happy investing!
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