I have a seller who would like to sell their home subject to existing lien. We would put $5k down, pay the amount of the mortgage monthly and at some

Asked by Chdvaone, Fort Worth, TX Wed Oct 21, 2009

date in future refinance to pay off lien plus balance of what is owed to seller. Is this lega? How do we find out the risks or ramifications of doing this? We are located in Dallas Fort Worth area of Texas. Thank you!

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Dallas Texas, Agent, Dallas, TN
Sat Oct 24, 2009
Have you seen all required documents lien, how is it filed in county office, are there penalities ... only a few questions come to mind

Much needs be investigated prior taking on this risk

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0 votes
Charles Reid, , 76092
Thu Oct 22, 2009
The only way you can do this legally is to get written permission from the lender. They will certainly want to do a credit check on you and will probably charge a fee for the assumption if they will do it at all. Otherwise the advice given by the previous agents who have answered this question is very good advice. If you want more details about the laws governing subject to liens contact me. I will be glad to help.
0 votes
Bruce Lynn, Agent, Coppell, TX
Wed Oct 21, 2009
My advice....don't do this. Just way too many problems. What guarantees you can get financing in the future? Remember over the last year financing options have change significantly. What got people loans last year and 2 years ago is not possible today. There might not even be financing in the future or we could return to 20% down.

Most loans also have a "due on sale" clause. So if the lender finds out that they have sold the home to you they could demand immediate repayment of the loan. In the past I think they did not care as long as the loan kept current, but in these days of change in control of the banks, notes being sold, and government intervention, there are checks. Can't pay the loan off as they request and you could loose the house.

The final problem in these subject 2 loans is who has the deed? You can't get it switched to your name if they have liens now or in the future. What happens next year if they get federal tax liens? You don't own the house...you don't have the deed ....and you'll never be able to get it until they pay their taxes?

What about insurance? Are they going to pay the insurance? You can't typically buy insurance on a structure you don't own. What if they don't pay the insurance? The lender will foreclose...you get kicked out of the house and loose all your $5K.

My advice is get with a loan officer. Get prequalified. If your credit is not good...let them give you a goal as to where you need to be and how much money you need to save. Rent cheap until you can hit these goals and then buy the right way.

We just see too many of these deals go south. Seller keeps your $5K...keeps your first six rent payments or more and then the house goes into foreclosure...you have a short time to move and find another place....maybe 2-3 weeks.
0 votes
Genny Brown, Agent, Fort Worth, TX
Wed Oct 21, 2009
I would not ever take a chance on purchasing a home with a lien. You could easily loose your $5000 dollars and the home. IYou need to get advice from a real estate attorney.Even though I would love to advise you a real estate agent could not and should not get involved in this transaction. If you know what type of lien is on the property look it up on the web.

Have you been approved for a loan? Getting approved will help you feel confident about purchasing a home. Your next step is to contact a Realtor and find another home. If your credit is an issue rent. Renting will help build your score and give you time to mend your credit,
0 votes
Jerry Holcomb, , Dallas County, TX
Wed Oct 21, 2009
Hi Chdvaone:
I have seen too many people burned on a "subject to" transaction.
Is there a reason you cannot obtain financing today? If so what are you doing to correct this so that when this future date arrives that the seller wants you to actually purchase the home will you be ready? Many people have been taken advantage of this way. They loose the $5k down and all payments made since they are unable to find new financing.
If you need help finding out if you can finance now or want a plan for being ready down the road send me an e-mail.
0 votes
Britta Hinze, Agent, Fort Worth, TX
Wed Oct 21, 2009
If you are going to consider owner financing or a lease to purchase option you must contact a Real Estate Attorney to represent you and make sure that you are protected.

There are no protections from the acts of the seller that jeopardize ownership. For example, judgments filed against the seller, bankruptcy of the seller, or the death of the seller may result in all of the buyer’s rights being cut off with no legal recourse against the seller.

The buyer loses all payments made to the seller if: (1) the seller cancels the lease due to the buyer’s failure to pay a monthly payment or maintain insurance on the property or (2) the buyer fails to exercise the option to purchase when the time comes.

Often when a buyer enters into a lease-purchase agreement with a seller, there is already an existing mortgage on the property. If so, the mortgage, through the due-on-sale clause, may actually prohibit
the owner from entering into a lease-purchase agreement. If the owner knowingly or unknowingly ignores this clause and enters into a lease-purchase agreement, the owner’s lender may very well have the right to demand the entire amount of the loan. Unless the buyer or seller has the ability to immediately pay off the underlying loan, all of the buyer’s interests will end through the operation of the due-on-sale clause.

An unscrupulous seller may borrow money against the house, creating an additional mortgage. The new buyer or lender in that case may cut off all of the original buyer’s rights.

There are many risks involved with seller financing and the best way to protect yourself is to hire an attorney.
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