Although I am starting to hear of people who want to do this type of deals, I will briefly explain how it works and the pitfalls.
The 'take over payments' plans usually involve the use of an AITD (all inclusive Trust Deed) or wrap around loan. We have not seen these in the market place for a long time, since money was easy to get and home prices/values were going up rapidly. Here are the pitfalls.
1. For the past 20+ years lenders have NOT been writing assumable loans. Any transfer of a beneficial interest in a property can trigger the 'due on sale' clause. This could leave you in a place where you paid a down payment, several months of payments on the loan, and then get a notice from the lender of an acceleration of the balance of the loan due to the 'due on sale' clause. If you could not refinance the home at that time, you could lose your out of pocket money AND the home.
2. Many loans these days are NOT 30 year fixed. You could get into a situation where the underlying note adjusts and you can no longer afford the payments. If you could not refinance ... (same conclusion as above).
3. Some loans these days are negative amortization loans. When the limit of the loan is reached, these loans will recast resulting in significantly higher payments. If you could not refinance ...
4. Many homes have loans that are greater than the value of the home. You could end up paying much more than the home is worth in this market.
5. Since most loans are not assumable these days, the original owner of the house remains obligated under the existing loan. This means it shows on their credit report as their obligation and limits their ability to make future purchases.
6. People with equity in their homes and a home that will actually attract offers from the general public will not want to stay obligated under their loans.
7. Usually these deals involve you paying the current owner and they are responsible for paying the mortgage holder. If the owner does not make the payments to the lender you could end up with the property going into foreclosure. If you could not refinance ...
8. To avoid #6 above, if you can find this type of deal, make sure you are paying your payments to an escrow company, property management company, etc, who deposits the funds into a trust account and disburses them based on signed mutual instructions from you and the seller.
All that being said, if you can find someone who is willing to do this type of sale, make sure that you are represented by a great team who will protect your interests. This team should include your trusted attorney to review all documents and deal points. Adding a great real estate professional who will insure that you get all the required disclosures from the seller and negotiate on your behalf, would also be beneficial.
On the other hand, if you are a first time home buyer with little money for down payment and marginal credit, you may qualify for city, county, state and federal programs that would allow you to buy a home without the headaches and concerns addressed above. Please contact me if you would like to discuss either 'take over payment' properties or assistance for first time homebuyers. It would be wonderful to see you in a great home soon. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty
This practice is RARELY done. And if done, should be done with extreme caution.
My broker used to refer to this practice as "subject to foreclosure"
If the homeowner is in trouble the bank can and will move ahead with the foreclosure process.
There are plenty of other ways to get a good deal on a home.
On the other hand, my parents bought a home for my sister, she started paying the payments directly to the bank after about a year, and then was able to finance into her name after a year of making payments. But it's a big difference between family.
Too hard to find an ideal home for something like this for a buyer - too risky for a seller... too much could go wrong.
Possible alternative: find an investor, friend or relative who would help you buy and enter into a "shared equity" transaction with them.
That's a good question and of course depends upon the area where you want to find a home. So the first thing is to decide where you want to buy, then scour the newspapers and Craig list and other such means for owners to get their information out.
Also talk with an experienced Realtor agent in your area who will advise you on how to find such a property on the MLS or otherwise that is reasonably "for sale".
Along the way, hire a qualified real estate advisor who will fill you in on the legal complexities of where you are going with this.
Some other answers here dealt mistakenly with whether or not it is a good idea to buy a take over payments home.
Harrison K. Long, Realtor agent and Broker, Coldwell Banker Previews, Irvine, CA.
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Everyone kept telling me how "awful" this was to do. They keep saying the bank can call the loan. Yes, they can. I am a California real estate broker too. The question you have to ask yourself is.....do the banks want the house? Especially today. The loan I tookover in 1997 was at 10% interest and it was 13 years into the loan. The going interest rate then was lower than 10%....I made the payments on time. What bank wants to call a 10% loan????? They couldn't get 10%. I was paying them 10%.
Today, the rates are very low. If you find an 8% loan to take over....ask yourself.....does the bank want to own this property? Is there such a tremendous amount of equity here that the bank wants this property? It costs the banks lots of money to get rid of the inventory they do have.
We in the real estate business are scared to death of anything out of the ordinary. A lot of agents don't know the details of the "subject to" process. A lot of them think they know it because it's "what they heard".
If you think you can make money by renting out the house or by fixing it up or you can live in it cheaper than renting, then go for it.
I tookover a $29,000 loan on and gave the "seller" $4000 cash to get it. So the purchase price was $33,000. (yes, folks, that was in CALIFORNIA) I fixed that one bedroom condo up over 9 years. I sold it for $225,000. It cost me $8000 for the stuff to remodel it. The payments on it were $244 a month. I could not rent anything cheaper.
I CAN'T WAIT TO DO THE NEXT ONE. The banks COULD call the loan......but the economy was way better in 1997 and all the way up to 2000 nobody called my loan. I have heard this time and again from investors.
BUY THE SUCKER.
The trust conveyance is a way that is legal an accepted by the California and National Association of Realtors. It would take some time to get you up to speed but it can be done legally.
You can accomplish your goal with a "Land Trust" contract and be safe that the bank will not accelerate the loan. I have a company that does this quite well. Please contact me for the details.
Why are you looking to simply assume payments?