For those looking to invest in real estate in today’s market, there is a unique way to earn without the need for cash or credit, and without the risk or hassle of owning rental property. In this article, I’ll show you how you can put unsaleable homes under contract subject to an existing mortgage, and then assign the contract to a buyer who didn’t qualify for a mortgage. Your profit averages around 5% of the purchase price.
This is not a mortgage assignment
One of the newest crazy things circulating on the Internet right now, and many investor mailboxes, is a concept called Mortgage Assignment. For those who may not be aware of this, it sounds like you are just assigning a mortgage from person to person. Keep in mind that this is not the same as a mortgage assumption where the lender shifts legal responsibility from the seller to the buyer. Rather, the assignment of the mortgage is no more than the assignment of payments to the buyer, while the seller holds the mortgage in his or her name. In a mortgage referral program the primary transaction is still a sale subject to the existing mortgage. In either case, the seller of the property is still on the hook, credit-wise, if the mortgage is not paid. What you’ll do is find sellers who are willing to sell their property on an existing mortgage and market that property to a buyer who has some cash, but who can’t qualify for a mortgage under today’s stricter underwriting criteria.
Why do you need to be a real estate agent
One of the first questions that arise is how can you do this without being a real estate agent? Well, it’s simple. What you will do is get the seller to agree to you placing a purchase option on their property, you now have an equitable interest in the property. You will market your interest in the property to other buyers. This is no different than marketing your property to buyers such as the FSBO.
They are “subject” to trades
In a “Sub2” or “Sub2” deal, you are purchasing the subject property for existing financing. This means that the existing mortgage will not be paid. If there is equity in the home that the seller wants to cash out, either the buyer will need the cash on hand, or the seller can agree to assume the payments in the form of a second mortgage. Typically, a Sub2 deal is made when there is little or no equity, because the seller cannot afford to pay the mortgage on settlement, pay any fees and commissions, or both. The alternatives to this are a short sale or foreclosure, neither of which is easy or fun.
The biggest problem one runs into with Sub2 deals is something called the vesting clause in the sale. What this means is that when the property is sold, the lender has the right to call the mortgage due, which means that the buyer will then have to refinance the seller’s property facing foreclosure. However, from the experience of nearly all Sub2 investors, not once is a mortgage called due on sale. Many teachers teach all kinds of tricks to avoid notifying the lender of the sale, including the land fund and the bond contract, but others will teach you to be upfront with the lender and not lie or hide anything. The way a lender usually finds out about a sale is not when a new deed is registered, but when a homeowner’s insurance policy has a new owner. In my search and hire package, I explain the eligibility requirement to sell in more detail and why you don’t have to worry about it.
At the moment, the market is perfect for Sub2 tasks. Many homes are now underwater, which means the seller owes more on the mortgage than the house is worth. There are sellers who can no longer afford their mortgage payments and are either struggling to make the payments each month or are falling behind on their payments and facing foreclosure. In Find and Assign, I have a matrix showing the different options a seller has for disposing of their property, along with the costs of each. If you are able to show the seller how they can walk away from their property and make mortgage payments without affecting their credit, you have a motivated seller and they will accept your offer.
In the past, all you had to do to get a mortgage was muddy the mirror. This means that you simply had to be alive! Banks and mortgage companies offer loans to anyone who can fill out an application. There were loans without documents, declared income loans, and loans to home mortgage buyers. Down payments as low as zero. Fast forward to today. Now, you need to prove your income, file two years of tax returns, bank statements, and have a credit score north of 680. What we have now are buyers who a few years ago could get a mortgage, but now they can’t. Therefore, you are in a perfect position to sell unsaleable homes to non-certified buyers, all by simply convincing the seller to make a purchase option subject to the existing mortgage and assigning that agreement to the buyer for an assignment fee. The new buyer gets the deed at settlement, and pays the closing costs.
There are many ways to find sellers, including posting ads on Craigslist and classified ads in newspapers. A sample ad could say “We buy homes with less or no equity. Get out of making more mortgage payments.” A great way to find sellers is to contact real estate agents and ask them to provide you with leads for those who want to sell, but can’t because they can’t get the cash to go to settlement. You can offer the agent a referral fee. If the agent is honest and says they can’t accept the referral fee, you can still pay the agent legally by having the agent become your buyer’s agent. When you acquire the home on contract and then assign the contract to the final buyer, upon settlement, the agent receives their legal commission, depending on what you agree to. In Finding and Assigning, I go through many other ways to find vendors for Sub2 Assignment.
Of course, you need buyers to complete the deal and make money. You can find buyers by running ads that say “Buy home with no mortgage qualifications. 10% cash required”. You can run these ads on Craigslist and newspaper classifieds. You can also contact mortgage loan officers and ask them to provide information for those who want to buy a home but cannot qualify for a mortgage. What you may have to do is simply give these loan officers your information and have them give it to the would-be buyers. You can submit a fee to your LO on any trade you make.
Writing the agreement
There are two ways to do this. One way is to write a simple real estate purchase agreement, where after your name you write “and/or waive.” In the Purchase Price section, you’ll write the price, then “subject to current financing as detailed in Appendix A.” In Appendix A, you’ll list the mortgage balance or mortgages on the property, and the current monthly payment. There are no special forms required. Just use the wording. The second method is to write a purchase option on the home, using the same subject matter for the language.You can then either assign the purchase agreement or an option to the new buyer.If you are using a purchase agreement, you need to ensure that you have the proper escape conditions that allow you to exit the deal if you don’t You find a buyer.You don’t actually want to buy the property, that’s what the agreement says.With an option to buy, the seller gives you the right to buy the property, but you’re not obligated.If you don’t find a buyer to assign the property to in a 90-day period, just walk away.
When doing these deals, there are also some disclosures that must be signed by the seller, which is to disclose the fact that the sale is subject to the existing mortgage and that the mortgage will remain in their name. You also reveal the possibility of a maturity condition of the sale. What I always suggest is that before you start with this, find a real estate attorney who has done Sub2 deals before. You can find one the same way I did, on Craigslist! In Finding and Hiring, I share how I did it, and what questions you need to ask. You may also need a title agency to close the deal, and I cover that in Find and Assign. The real estate attorney must also know who he should be using.
Complete the deal
All you really need to do is have the end buyer write you an approved check for the assignment fee after they have done their due diligence on the property, including title search, inspection, etc. A title search will show you any and all liens associated with the property, along with any judgments on the landlord and any taxes owed. You can use any address agency to perform a search. The fee will be around $60 or so. You can either ask the buyer to do this or have the seller do it and make it available to potential buyers.
When you have a buyer for the property, you’ll want to refer them to your real estate attorney to close the deal. This way you have done your part to bring the two parties together and thus earn your assignment fee. The key is to have a real estate attorney involved in these deals and not try to close the “kitchen table”. You don’t want a buyer-seller coming to you because you haven’t disclosed everything you should have. If you do it right, you can make a reasonable income by setting aside just one or two properties per month. If you search online, you can find everything you need on forums and other sites. There are no special forms, other than the Purchase Option, Purchase Option Allocation, Purchase Agreement and of course the CYA Disclosure Form. Other forms that are included are an authorization to disclose information and possibly a power of attorney. If you find a real estate attorney who has made these deals, that person can provide you with all the forms you need.
to learn more
in Search and appointment package, I give you more detailed information on how to do Sub2 mappings. All of this is contained in one of the bonus packages in the form of a 42-page guide, along with all the forms and agreements you need, including a very detailed disclosure form. I teach you many ways to find sellers and buyers, and even show you how to get other people to look at real estate for you without paying cash up front. Along with that, you get a PowerPoint package that you can use with your vendors, along with other useful tools and resources. There is no need to spend hundreds of dollars on courses or workshops. Once you understand how to find buyers and sellers, and know what forms you need to fill out, you can start doing it with very little cash. All you really need is the drive and dedication to place ads online, and what to say to those who contact you from your ads. In Find and Assign, you can even get texts and information to send to sellers and buyers.