question from the seller of a subject to - what if the buyer doesnt make repairs

**hassansr** · 12-23-2008, 05:17 PM

I got a new question from a subject to seller last nite that was concerned about his wife's house. The question was "what happens if the the seller deeds the house over to the trust and the trustee takes his time or doesn't rehab the house? That was a new one to me.

In this case, the house is worth about 150k in a normal market, with the buyer taking it over for the payoff at 114k. It needs about 7k in repairs and will be held as a cashflow property.

I assigned it to a third party for a modest fee and was able to come up with what I thought was a decent answer.

How would any of you have answered this concern, and what are your thoughts?

**Codythebest** · 12-24-2008, 06:28 AM

My guess is there is nothing the seller can really do, unless in writing in a contract. The deed is transfered and he's not the owner anymore. The new owner is the new owner and decides what he wants to do with his property.

**Greg** · 12-26-2008, 05:51 AM

Is this is one of the downsides of "subject to"? The buyers don't do any repairs and they don't make the payments while they collect the rent. In the end the seller ends up with a defaulted loan on a run down house and the buyer walks away with all of the rent money and clean credit.

How are these deals structured to protect the seller from this?

**hassansr** · 12-26-2008, 08:58 AM

Originally Posted by Greg

Is this is one of the downsides of "subject to"? The buyers don't do any repairs and they don't make the payments while they collect the rent. In the end the seller ends up with a defaulted loan on a run down house and the buyer walks away with all of the rent money and clean credit.

How are these deals structured to protect the seller from this?

That's the risk that the sellers must consider. Do they allow the buyer to make the profits or do they risk running out of money and ruining their credit with a house they can no longer afford?

The best way to protect the seller is to place a clause in the purchase contract which states that if the buyer defaults, the seller has the right to get title back. Unfortunately getting title back may be easier said than done if the buyer has sunk a lot of cash into the deal

**Greg** · 12-30-2008, 05:58 AM

If I understand this correctly the loan stays in the sellers name and the buyer makes the payments in the name of the trust.

If the buyer defaults on the loan the seller won't have to worry about getting the title back because the bank will take the title leaving the seller with a foreclosure on his credit while the buyer keeps the rental income.

**hassansr** · 12-30-2008, 03:47 PM

Originally Posted by Greg

If I understand this correctly the loan stays in the sellers name and the buyer makes the payments in the name of the trust.

If the buyer defaults on the loan the seller won't have to worry about getting the title back because the bank will take the title leaving the seller with a foreclosure on his credit while the buyer keeps the rental income.

that's the risk.

**Codythebest** · 12-30-2008, 05:25 PM

What about the seller putting in writing that the buyer must pay the mortgage to the seller ( or even better, in escrow) and the seller pays the bank? Seller will provide prrof of payment to the bank and eveybody is protected, right?

**StreetCopMillionaire** · 05-07-2009, 07:39 PM

Cody,

K...not sure if I got your reply straight...so wanted to clarify....to protect everybody...

"What about the seller putting in writing that the buyer must pay the mortgage to the seller ( or even better, in escrow) and the seller pays the bank? Seller will provide prrof of payment to the bank and eveybody is protected, right? 12-30-2008 04:47 PM"

How in the world does that protect the buyer, who is typically taking this over from a don't wanter that is in a situation, possibly involving foreclosure. If I took it over, and am paying the seller, I'm just supposed to "trust" that he's paying the bank with the cash I send to him....after he has already showed that he shouldn't own the property to begin with?? No way would I ever do that! As far as I'm concerned, with as many deals that are out there right now, if I'm taking over a property subject to, he's going to be the one with all the risk...or I don't do the deal!

And to answer the original question...yeah, if the buyer doesn't make repairs, it doesn't really matter...the original seller is out of the deal...just has the mortgage in his name...if the buyer keeps paying like promised, then it doesn't really even matter...the mortgage will eventually get paid off, and then it comes out of his name!