Bill O'Rafferty's daily info of importance

I was asked about the hostile take over. We could call this taking the property, "subject to" the bank allowing an assumption of the loan but that is really not what it is. Grab a property where there is no equity or it is over encumbered a little (owe more than it is worth) and owners are losing it - if it will cash flow for you, even though you have to catch up a couple payment, have the owner sign a grant deed (warranty deed in some states) or even a quit claim (although not as good a deed), record the deed and just pay the payments. Make sure you get a signed 3rd party release form (need one - ask and I will send along)so the bank can discuss the loan with you on behalf of the former owner. You tell them you will catch up the payments and pay them on time and when you can do so you will re-finance with them. If they give you a hard time, then you tell them you are renting out the home, you will pay the payments and if they want to foreclose (against the former owner even though you now own it the loan is in the name of the former owner) get it on. You can rent it out for 6 months to one year before it is foreclosed upon and they can explain to their investors why they called a loan due and foreclosed at great expense when the payments were being paid and the home is upside down. I don't recommend you be a wise guy, but they have little choice but to allow you to assume a non assume-able loan and if you hold it 2-5 years, you can sell the home when prices rebound and likely you got a little cash flow along the way. Make sense?

I love the creativity that you possess and how you apply it to Real Estate, especially the Hostile Takeover. My Dad always told me that if you want to get rich find problems and fix them, then go find more problems and fix those; find a need and fill it. Looks like you have found a way to do that and not only fix the banks problem, but the homeowners as well. Thinking with the end in mind is the only way to look at RE transactions. Well done Bill, make your money in a few years, but fix the problem now. Exit Strategy thinking applied to the beginning of any deal will always lead to success.

You are the man Bill!!

Oh yeah and to those who tell you to slow down so they can catch up......Nope, sorry. They need to jump on and learn faster to keep up. Making things happen faster then others can handle is your talent Bill. I believe this is why you are able to see a deal where many others only see a problem, you are a visionary. It was a pleasure to meet you Friday Night at the Edge and even more fun to watch and listen to you blow through topics at light speed on stage. You literally were spewing knowledge on us from up there on the stage and I was like a kid in the candy store.

Take Care and keep on Crushing It!! You have an eye and passion for the RE game that I admire and will soon possess.

Dave

Cash in on the short sales - if you see a short sale that you want to buy or assign or broker and it is listed with a realtor, try giving them a call and asking if the deal does not look good to close - if it is on the rocks, tell them you will give them $1,000 bucks to release the short sale listing and introduce you to the buyer (of course you could contact the buyer direct and encourage them to dump their realtor but I say give the guy or gal a few bucks for their efforts - if you are a licensed realtor you cannot contact the seller directly until the listing expires). If you know of a short sale (friend with a home upside down and losing it), contact that same realtor and ask them for $1,000 for the introduction to the seller if it leads to a listing. In some states realtors cannot pay referral fees to unlicensed folks but send me an email and I'd be glad to tell you how to do it legit. Let's all make some money.

Yes this post makes complete sense with one exception...

Why are grant deeds and warranty deeds better than quit claims? I've used quit claim deeds with desperate sellers in the past so of course now I'm curious as to why the other two are better.

Bill, thanks for the continued information that you are sharing with us. I wish I had an agent like you here in NY. I spent last night sending e-mails to a bunch of agents I found on re-max to see if they are investor friendly,motivated and open to creative investing.
hopefully I get a response.

Thanks
Richie.

A grant deed (warranty deed) conveys title and a quit claim conveys whatever interest the grantor has or might ever have - there is nothing implied in the quit claim that the grantor even has any interest whereas with a grant deed, one conveys title, with with implication that they have title to convey. It is perhaps a distinction without a difference but in any subsequent title issue or litigation, the grantee can logically argue that if something was granted to him/her, they have/had a right to believe it is/was theirs. I can give you a quit claim deed from me to your own property, which in effect says I convey to you any interest I have or will ever have and if that is nothing, then it means nothing. Both documents convey title from the grantor to the grantee but given the option, every title officer or attorney (and I am neither) will tell you a grant deed is the preferred document.

thanks for writing. Maybe this should be day 4 info, but I suggest if you find an agent that seems to understand investors and what you are trying to do but he/she does not have the time or can't take the time to put in 40 offers for you. Ask if you can come to their office and work with them to do much of the grunt work - look up properties, type the offers, etc. If a sale happens they (agent) get a commission and you get a great deal on a property and if not, they lost nothing. You get their guidance and coaching for free as you submit 40+ offers, and after a bit of time, you may not need them to do so - free educations and all it costs is your time.

Best wishes,

Saturday

but would work in New Mexico might not work in NYC

As BC might be able to attest, RE agents are very serious about their time. Most aren't really motivated about doing alot of work and presenting offers especially when;

1. The buyer(assigner) is not really the buyer

2. Their broker does not allow them to unless they are pre-qual'd and are not sure there is definitely a buyer in place. Not having a buyer on the spot at time of offer is normally the #1 reason NYC agents don't bother w assignment deals.

Great idea nonetheless

I believe that this will turn into a very good place for me to gain knowledge simply from your conversations. Just "a fly on the wall" baby

You are full or knowledge, thanks for sharing!

I have also used Craigslist as a view to an area. You can with a few clicks, find out, property for sale, rental rates, are there a lot of people looking for rentals, jobs offered, and don't forget the blogs. There are people talking about real estate usually.

Yesterday I said today would be Saturday but upon inspection of the calendar, it is actually Friday - another day for a deal this week?

I was asked to do a blog on the subject of taking property "subject to" various issues and will put this in layman's terms to include a couple suggestions.

When one purchases a property, there is an assumption that the title should be free and clear of liens or defects and loans, notes, deed of trust, etc. should be proper. The absence of any of these items can challenge your ownership interest down the road - either shortly or way down the road. Taking a property "subject to" simply means one or more of the listed items is not resolved before conveyance from seller to buyer. Now I could come up with legalese in much more detail, but in simple terms you are taking title to the property with unresolved issues/items. Why would we do this?

Let's say we took title (at no cost to us) to a property that is worth 100K and there is a lien against it by the County for back taxes that amount to 20K. Is this a good idea? Duh - 80K in equity is a good day for me, but I know I have to pay the 20K in taxes before I can convey proper title to the next buyer, and there could be fines or fees associated with the lien. I would take that in a minute, even though we do not know how much the fines or fees are, we can go ask at the county or make an assumption that fines and fees are generally no more than 10% of the lien, so an emcumbrance of 22K on the property worth 100K - get out of the way so I can purchase that one on my credit card.

I will buy properties "subject to" the existing loan if the numbers work out for me. Let's say the property is worth 200K and the loan is 205K and the payment is 1400 per month and I can rent it for 1500 per month. Will I take the property "subject to" the existing loan - oh, yea. In So Cal, that 200K home would cost 330K to build and we are in a temporary crushing downturn in pricing that will be short lived (no one can build even one more home until mine is worth about 330K because that is the cost of building it - not one nail can be driven in a piece of lumber toward the construction of a home until it can be sold for at least the cost of building). I will take the property "subject to" the existing loan, pay the payments and hope the bank just cashes my checks and does not call the loan due (Saturday's topic), rent it out about cash flow neutral and in 5 years when it goes above 300K in value, I sell and spend a month on the Island of St Johns in the Caribbean or whever ever I want to go because that was a home run - and they are all around us. All of us know someone upside down in their mortgage that want out. We just need to be sure the home is not so far upside down we cannot rent cash flow neutral and that the loan is at least 20% below the cost of construction.

Happy purchasing. Let's talk Saturday about what to do if the bank is offended you took their loan "subject to."

I am working a Subject 2 the existing loan. I think this is where it is at. The lady I'm trying to "buy" the house from is old school and isn't getting how this works. She is 5months behind. I think this method of acquiring real estate is where I will make my niche. not alot of out of pocket and lots of them available!

Bill, I am really enjoying this. I am still at the EDGE learning from you
( minus the big catus trees ).

Great stuff!! I have your room ready when you move to NY
I think you need to start a training school for agents, so they can learn the wholesale process as well as how work with investors.

With a wrap around or "contract of sale" (not a sales contract) property remains in the name of the former owner and does not transfer until triggered by contract provision (sale, payoff, re-fi) - hostile "subject to" transfer involves immediate transfer via a deed - can be done with escrow but I usually just get a preliminary title report so I know what is out there and record the deed - remember with these deals the worst case scenario is you pay no payments and rent it out for 12 months or until foreclosed upon (former owner is mortgagee not you so they foreclose on them not you the new owner). Also, always be honest and up front with all parties - if that kills the deal, better it dies now than to have folks screaming on the other end. In this market there are more where that one came from.

Thanks for the question....Bill

You are a wealth of information Bill! Keep it up!

Thanks Bill for all the great insight...I will be joining the Success Acadamy in the coming week and I'm looking forward to it. I do appreciate the input of everyone on this site, it has helped me have a better understanding of the REI business.
Thanks

Subject to is very cool. Seems like an easy way to acquire a ton of props. Could you scoop up a bunch of these and then do lease options on them?? Or is that too risky?

Thank you so much for your "daily info of importance"! You make subject-to's very easy to understand, packed with great insight. Keep up the words of wisdom. They are both inspirational and useful. Thanks again,

Donny

I just saw this. Your posts are great man. Please KEEP THEM COMING

Lease Options are what I'm doing with them. I definitely think its the way to go.

Fellow DGer asked about building credit and I sent this to him - maybe a thought for others too?

Contact your current credit card companies and see if they will raise your limit. Contact your local bank or credit union and see about a line of credit. If you have equity in real estate, contact a local small town bank and see if you can get ahome equity line of credit. IF you have 401K, see if you can get a loan against it at a low interest rate. All these work for folks like me. Best Wishes

If you take a property subject to and you live in an area with sagging real estate prices, you might do a lease option to get a tenant that will take care of the property and pay on time because they have "skin in the game." (potential homeowner at option point) If you live in an area like me where prices have fallen 50-70%, please do not lease option that property, or at least give me the option rather than a tenant because I will say nice things about you.

In slower markets, we expect slow, gradual appreciation when the economy recovers - lease options in these areas are fine as we can predict appreciations to some degree. In crazy markets line Phoenix and So. California, we will surely see 20-40 percent appreciation in the year (yes, one year) the housing market recovers (2-4 years). Then we will see slow sustained growth. The pivitol issue is what does the home cost to build. If the home would cost 200K to build (it likely sold 3 years ago for 240K) and you can get it now for 160K and the current market for that home is 150K: why would you give an option to purchase it down the road for 175K or something?

Put a tenant in there, rent it our for 4 or 5 years and cash in for 210K. Why do I say 210K? If it costs 200K to build, and the contractors that build homes want at least 10% profit, then new homes like it will cost 220K and up - and remember Bill's mantra, no one can drive a nail in a board toward building a home until is will sell for at least the cost of building it. Hold that property and don't give a lease option on it unless it is only 10-15% below the cost of building it. Will homes be built again in America - yes. Will they sell for less than the cost of building them? No IF you can buy them for 20-50% less than the cost of building them should you share that with a tenant - would be owner? - maybe you would but I want to send my grandkids to Harvard and it is expensive so I will keep the profit myself.

I am going today to contact an owner slightly upside down that wants out because she just got divorced and cannot afford the home on her own - if she will sign it over, I will catch up the payments, rent it out and no, I will not give an option to purchase at a lower than building cost price - I did not cause the divorce and I feel bad for her, so I will fix her credit immediately by catching up the payments and hang on for a few years and take that trip I have been writing about.

Happy holiday weekend one and all.

Thanks for the insight Bill. Renters it is for a couple years.

Regarding day 4 blog, taking a property "subject to" approval of the lender (and they will not allow you to assume the loan) has some risk. Assuming the payments are late and you catch them up and pay them, you have saved the mortgagor's credit and you are a hero. At some time in the future, you refinance or sell and payoff the loan (you will need that 3rd party authorization remember - if you want a copy of what the forms looks like in California, email me and I will send that along). As soon as you record the deed into your name, the bank may (depending of whether or not your county will do this) receive a copy of the deed and notify you the loan is not able to be assumed. That is not likely. If you pay the payment with your personal check, no one will likely care and take your payment, but questions could be sent your way as to why you are paying the payment for another, but that is not likely either. You can pay the payment on line or with a bank check and perhaps aviod the questions altogether, but ALWAYS BE HONEST, which I advocate, does not mean you have to call the bank to notify them you have taken their loan over. If they contact you or the mortgagor, call them back and tell them you will try to refinance or pay off the loan as soon as you can but in the meantime you will pay the payments. Tell them you will refinance with them when you can and then, if you refinance, do refinance with them. More than likely, you will hear nothing and if you do hear something, all they want is the money each month as the home may or may not be underwater, but to call the note "due and payable" (usually within 30 days), refuse to take payments and start foreclosure proceedings is their option. I would ask them if their bank has the policy of refusing payments and then foreclosing or property which will cause a loss of 40,000-100,000. (In California, the standard foreclosure costs 58K - corporations must use attorneys for every little step along the way and at 500 bucks per hour...) Can you imagine the conversation in the back room at the bank - hey, I got a guy paying payments on this loan on a home that is under water on which he did a hostile takeover and I think we should foreclose, spend 58K foreclosing, pay realtor fees, escrow, title, repair costs and such after we foreclose just to teach this guy a lesson - he should not take over our loan without our permission. This could happen and you should be aware of it - do you think it will???

An issue will present itself at tax time when the mortgagor gets the IRS form 10-98 for the interest paid that you paid (perhaps the topic for Monday).

I have rambled long enough - the bottom like is the mortgagor has breached the contract by missing a payment and will likely lose the home regardless. If you take over the home and payments and the bank makes the STUPID decision to foreclose, it will take 6 months to 2 years, all the while you have been paying no payment, receiving rent and the mortgagor is no worse off than she/he was before you came along when they were missing payments and in foreclosure proceedings anyway. Oh, by the way, the foreclosure is against the former owner (mortgagor), not you as you are not on the loan.

Do no harm, always be honest and profit legitimately.

I would like to copy all this great info but my printer would probably die of overwork!! Great stuff and i am taking notes. Thank you so much.
Now for the question. Can I do a lease option with an assignment clause to purchase a home that the owner has a mortgage on? Would this create a problem between them and their lender? Thanks for your imput.

Bill,

Thanks for your informative blogs. I am a new investor here in CA and would appreciate your offer to send me a copy of the CA Subject To information.

thanks,
D.J.

If you have requested the 3rd party form but did not leave your email address in a private message and your account is set up that I cannot reply to your private message - send a request to my personal email or send a personal message that includes an email address - we are not to leave email addresses in these blogs as every marketing firm in the world will start sending you emails.

You continue to share your knowledge! Ever think about moving to the East Coast?