OKAY I'm going to list things to make this easy:
Why a Realtor needs to be cautious.
Why a seller needs to ask deep questions.
Almost 99% of Assumable loans have conditions to be met to allow the assumption.
Assuming a loan can take 60-90 days and the buyer is on their own without any help.
In a normal loan process there is a loan officer who vets the paperwork and assists with letter writing.
Servicers are not making money. Many have been taken over and merged due to market troubles.
For a lender to generate a new loan it costs $10000-$12000 in vendor and employee processing.
Servicers are not allowed to charge any processing, underwriting or all the vendor fees unless there
is a fee noted in the original promissory note.
Servicers work for trustees who own the note, the trustees can tell servicers to slowly turn down assumptions due to cost. Sometimes there are several trustees to get the nod from.
Generally the person doing subject to has low income/self employed showing no income and thinks this is the golden goose to buy real estate.
Pace Morby and Grant Cardone display themselves as driving Lamborghinis when they don't own one.
Pace's class costs $5000 initial for nothing, then another $5000 for the real candy cigarettes. There are his minions in the class who cheerleader to "help" lay people become "rich quick investors."
There is no such thing as due on sale insurance, do not be bamboozled.
Managing real estate is HARD. I've built and operated 91 properties, it takes skill to find the LOCATION, the cash flow, the tenant who doesn't die, get divorced, or flake... construction costs keep rising and though I was licensed contractor and built houses for Lennar nothing is easy. There is great financial risk, blisters on your hands, and worry.
Gurus say that after the half way point in an amortization schedule more is paid to principle and this is the secret sauce. Well sure it's nice but you still need to be able to make the principle interest taxes insurance and HOA monthly costs. None of these buyers understand the concept, it just sounds sweet. The buyer will not know anything about the actual promissory note or amort schedule until they close and some never get the note. Sellers rarely have a copy in a box. They need to order all the riders and note from the servicer.
Assuming a VA loan causes a hardship for the seller. Seller loses a percentage of his eligibility to purchase.
Agents are responsible to disclose this to seller and there are forms to sign. Rarely does the agents even get the seller to sign the forms because they don't know.
With a VA loan if the sub to goes bad the agents are liable.
Never ever do a sub to with a protected class. If seller is elderly which is often the case the heirs or the seller can come back and sue the agents and buyer for causing harm.
Trustee or servicing attorney is going to come after you with:
Accusations of Forgery, Bank Fraud, Wire Fraud,
Financial Schemes, Identity Theft, Concealment,
Mail Fraud, RICO Act, Equity Skimming,
violation of the Consumer Protection Act, and Money Laundering. Buyer needs a nice $40000 checking account to front the attorney fees at $400 an hour. Each court appearance will cost $9000.
Heirs will claim you defrauded the 'old guy.
Veteran is eligible for free legal aid.
Seller sells for higher price and agents win larger commission, all sounds great BUT when the buyer fails to pay they cannot sell as the value is not there.
Cost to foreclose is minimum of $100000. if buyer doesn't fight it. During that time period of a year or three no payments are made and the lender jumps in and forecloses, seller loses everything.
Lender foreclosing on seller's credit harms them for seven years. It shows long after the loss.
Insurance is very dangerous. Adding "buyer" to policy State Farm, Farmers, Allstate, Mercury and Chubb all deny these claims. The real estate is not covered at all. Roof damage, it's on you and tenant won't pay for uninhabitable home.
Changing insurance to buyer name alerts the servicer/lender in days. The loss payee notice to servicer/lender sends the file to a different division to be tracked. Often they put forced place insurance at four times the cost in the seller's name to cover the lender. Therefore buyer will pay for two policies at exorbitant cost.
Insurance right now is a nightmare. Any state that had disasters the underwriters are or already have put moratoriums on writing new policies. It's 98% likely buyer is going to need new insurance. The insurance agents do not want to write policies where the title is funky and there is a sub to because it entangles them in lawsuits.
Changing title in any way is a sale, excepting a FAMILY TRANSFER DEED. It is fraud to lie on the transfer deed. It's a transfer deed and servicer/lender gets a copy thus notifying or triggering. Transfer deed makes the property taxes increase in the months ahead. Buyer might not be able to afford the jump.
The gurus claim that buyers don't need title insurance. They joke about condoms, yes really in the seminars. However when it comes time to sell or the are forced to refinance because servicer called the note the title is a nightmare mess. If the seller is still alive and willing to play ball maybe they can get a notary to the seller to fix the transfers. Often the buyer puts the title in a LLC which they never keep current with the Secretary of State in the state where they registered. The buyer who doesn't have good credit to qualify for a loan isn't always the best with paperwork.
These guru classes cost $5000 -$10000 which would be better spent on down payment and trips to the library where the same information is available for free.
IF things go bad the seller cannot get a modification or forbearance which were offered in 2021.
When the servicer finds out they often dump the loan off in groups to the real nasty servicers like SPS.
Seller bankruptcy notice 99% goes to servicer. The bankruptcy court requires seller to disclose every loan on their credit report. If seller lies to the court they can be thrown out. Bankruptcy notice halts receiving payments and accelerates many extra costs. Buyer can get stuck with an additional $20000- $50000 in legal fees that the servicer imposes.
When seller dies and heirs go to probate, the probate court also notices the servicer. Payments are halted, fees incur.
The 1098 interest form goes to seller. Seller cannot re-assign the 1098. Buyer can't legally claim the interest unless the seller contracts with a collection servicer for a fee of 15% who acts as intermediary. These middle men are not that timely in handing over monthly payments and late fees incur and show on seller's name. Buyer cannot prove he made timely payments if they ever go to get a loan.
Most Realtors involved in these do not know RESPA laws and find themselves advising without a NMLS license. There are fines and jail time. Do not ever talk about rate, terms, payments...
Most licensed loan officers don't want to risk getting in the middle of this and the company they work under forbids it.
Sure it sounds honky dory to get a 2.75% mortgage and seller carries 100% but the property will never cash flow in California or any high cost state.
Why would servicers want to subsidize investors to do sub-to? They do not. They would rather see a new loan in the portfolio fully qualified at 7.5% where the machines make money.
Now coming out of the 2008 shadows are the apps that advertise listings claiming the interest rates are two percent without an APR or any truthful details. You've seen them... With Roam is one that got Venture seed funding of a million five. This app searches recordings and assumes the rate on FHA and VA loans without really knowing any of the terms. They charge $5500 nonrefundable to help a buyer find these deals. The broker Steve Bintz is licensed in thirty states so he uses his license to advertise listings claiming to have the secret sauce to get buyers in. The app then charges a one percent finders fee/ brokerage fee for leading buyers to holy water. The app has no particular connection with the Servicer or Trustee, they don't know what paperwork is required, they don't actually process anything. However they do charge the money. On their website they display rates:
They are not licensed to advertise interest rates for residential mortgages, but they do. Reminds me of all the modification shops that cropped up out of the cracks of 2008- those guys got fined and went to jail.
I know of eleven current cases in California and Arizona where servicer called the sub to note in September 2023 so servicers and trustees are finding recourse. Several of these buyers never could qualify and there is not enough equity to sell. Servicer refuses to short sale and puts up fraud accusations. This trend is a moving target. We will see how it unfolds.
Caroline Gerardo,
NMLS# 324982
(949) 784-9699
apply here:
