Rent vs Buy in 91604>Question Details

Robert, Home Buyer in Studio City, CA

We're interested in taking over the payments on a home where the owners have fallen behind SO much that the possibility of their catching up are

Asked by Robert, Studio City, CA Fri Nov 26, 2010

nil. We're seeking a take-over-payment situation with the option to re-fi in our name a few years hence, at the same time save the old owners' credit rating.

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Cameron Novak’s answer
If the value of the home compared to the amount owed... make sure the bank will allow what you're proposing unless you'll be buying the home as a conventional purchase when you take it in a few years.

Careful... and get it all in writing (drawn up by an attorney).
0 votes Thank Flag Link Sat Nov 27, 2010
Hey there Robert....

What you're talking about doing is also referred to as a Subject-To deal (you're taking over the payments "subject-to" the original loan).

Here are some links which may provide you some assistance on learning about this advanced technique of acquiring properties:

Another technique you can use (and it's less complicated) is to do a Lease Purchase on the property. If the seller is behind on the payments, you can set up an 3rd party escrow account, make up the back payments, then just lease the property for whatever amount of time you need to get your finances in order, then exercise your option and purchase the property at a later date. By creating the escrow account, your lease payments have a nice paper trail straight to the mortgage lender of the original seller. This eliminates the possibility of the seller just pocketing your monthly lease payments and not keeping the loan current. Everyone knows where the money is flowing.

A lease option is also looked at more positively by a lender when you go to get your own financing. You can even receive rent credits from your lease payments which can be used as a seller concession (3%) and also can lower the originally agreed to purchase price. You can also agree to a LONGGGGG term lease like 5-10 years if you want because YOU, and you alone, have bought the right to purchase the property at a later date. (you can even have the option recorded at the courthouse as to "cloud" the title should the original seller try to sell it out from underneath you.)

You get to live in the house right away with time to work on your credit...the seller doesn't have to take the major hit on their credit because "you've" been making on time lease payments to them which directly pay the mortgage. It's the best of both worlds.

Hope this helps you out a bit.

Best wishes & Laus Deo,

Darin Ray
Lease-to-Own Professional
Independent Consultant
0 votes Thank Flag Link Fri Nov 26, 2010
Contact one of these Lenders for a possible answer of assistance 909 815 1962 Marc
0 votes Thank Flag Link Fri Nov 26, 2010
Robert, I think it is worth contacting a loan officer of your choice to see what financing options are available to you. What you are proposing to do is risky and somewhat complicated. It used to be quite common, but the "Due on Sale" clause in many loans these days has made it almost impossible to do. I hope you'll be pleasantly surprised by what programs are available out there. If you'd like some referrals to some loan officers, I would be happy to send you a couple.

0 votes Thank Flag Link Fri Nov 26, 2010
I am not sure what your FICO score is, but you can qualify for FHA financing with a 580 score, you just have to work with the right lender and purchase the home to be your primary residence. As far as your suggested scenario, I concur with what has already been advised, cautioning you to first make sure there is adequate equity in the property and that you do it in the right manner to cover yourself legally.

Best of luck buying a home.

Please feel free to visit my website and sign up to receive daily updates on available homes in your area.
0 votes Thank Flag Link Fri Nov 26, 2010
We don't actually have any particular home chosen yet. The situation in many households I'm sure...our FICO has taken a few hits these past 18 months, what with card companies drastically lowering our limits, thereby putting our percentage-owed over the 50% mark and thereby dropping the FICO immediately. That happened several times and as of now the FICO is not in the best shape. On the other hand, Annual salary is about $130k and we'd be able to put about 80k...90k down. So, although we haven't spoken to any mortgage broker yet, we're feeling maybe the better way to go would BE to simply make up some distressed owner's back payments of ....whatever.....5k, 10....15k....have them sign over a Quit Claim, although the loan would still remain in their name. And we're also thinking that, up to the point of acquiring our OWN financing, a paper trail would exist showing that WE'VE been making the payments, albeit in the existing owner's name. And of course, we wouldn't, in any case, pay the existing owner directly each month, but would make payments straight to the bank.
0 votes Thank Flag Link Fri Nov 26, 2010
What you're looking to do is an AITD sale (All Inclusive Trust Deed) some escrow companies won't do AITDS but some do. It's kind of a gray area. Technically the lender made a loan to Mr. Smith based on his credit & income & expects Mr. Smith to keep making payments. If the loan isn't assumable for you to take it over now, this is where the AITD comes into play.

Although title could transfer into your name, the loan would still remain in Mr. Smith's name & you would be making the payments. Normally an account would be set up so Mr. Smith is actually still making the payments even though now, the actual funds are coming from you.

Then, when you are able to get a loan in your name, you refinance it out of Mr. Smith's name & solely into your own.

I urge you to contact me or a Realtor in the area to check on the current value, if this house is nearing 0% equity, I strongly advise you against doing an AITD, because when you go to refinance it into your own name you may not be able to because there's no equity & Mr. Smith is still on the hook to pay off the loan or do a short sale & you'll be moving out.
562-430-3053 cell
0 votes Thank Flag Link Fri Nov 26, 2010
Is the loan assumable--before considering such a situation do protect yourself well and consult with an attorney who specializes in real estate--he/she can best advise.
0 votes Thank Flag Link Fri Nov 26, 2010
You need to check the conditions of the loan, it sounds almost like an assumption of the loan and that might not be allowed by the lender. There is a Due On Sale clause in most loans that prevents the loan from being assumed, the lender can call the loan due and then you would need to refi, sell or pay cash for the loan amount on the house. Seek legal advice first.
0 votes Thank Flag Link Fri Nov 26, 2010
My question to you would be-- why would you like to purchase this way as opposed to just purchasing outright? Do you have an owner in mind already? Is it because you think you will not be able to qualify for a loan at this time?
0 votes Thank Flag Link Fri Nov 26, 2010
Is there any equity in the home?
0 votes Thank Flag Link Fri Nov 26, 2010
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