How to Profit by Assigning "unprotected to" buy Options to …
For those looking to get into real estate investing in today’s market, there is a rare way to profit without needing cash or credit, and without the risks or headaches of owning rental similarities. In this article, I will show you how you can place unsellable homes under contract unprotected to the existing mortgage, and then assign the contract to a buyer who has not been able to qualify for a mortgage. Your profit is on average about 5% of the buy price.
This is NOT Mortgage Assignment
One of the latest crazes going around the internet now, and many investors’ email boxes, is a concept called Mortgage Assignment. To those who may not be familiar with this, it sound like you are just assigning a mortgage from one person to another. Keep in mind that this is not the same as a mortgage assumption where the lender legally transfers the liability from the seller to the buyer. Rather, a mortgage assignment is no more than assigning the payments to the buyer, while the seller keeps the mortgage in his or her name. In the Mortgage Assignment program, the inner transaction is nevertheless a sale unprotected to the existing mortgage. In either case, the seller of the character is nevertheless on the hook, credit-wise, if the mortgage does not get paid. What you will be doing is to find sellers who are willing to sell their character unprotected to the existing mortgage and market that character to a buyer who has some cash, but who can not qualify for a mortgage in today’s tougher underwriting standards.
Why You Don’t Need to be a Real Estate Agent
One of the first questions that comes up is how can you do this without being a real estate agent? Well, it is simple. What you will do is to get the seller to agree to you placing a buy option on their character.You now have an equitable interest in the character. You will be marketing your interest in the character to other buyers. This is no different than marketing your own character to buyers as FSBO.
Understanding “unprotected to” Deals
In a “unprotected to” or “Sub2” deal, you are buying the character unprotected to the existing financing. This method that the existing mortgage will not be paid off. If there is equity in the home that the seller wants to cash out, either the buyer would need to have the cash obtainable, or the seller can agree to carry the payments in the form of a second mortgage. Typically, a Sub2 deal is done when there is little or no equity in the character, because the seller can’t provide to either pay off the mortgage at settlement, or pay any fees and commissions, or both. The alternatives to this are a short sale or a foreclosure, and neither of those are easy or pleasant.
The biggest issue that one faces with Sub2 deals is something called the Due on Sale Clause. What this method is that when the character is sold, the lender has the right to call the mortgage due, meaning the buyer would then have to refinance the character of the seller faces foreclosure. However, from the experience of almost all Sub2 investors, not once has a mortgage been called due on the sale. Many gurus teach all kind of tricks to avoid the lender being notified about the sale, including a Land Trust and Contract for Deed, but others will teach you to just be upfront with the lender and don’t lie or hide anything. The way a lender usually finds out about the sale is not when the new deed is recorded, but when the homeowner’s insurance policy has a new owner. In my Find and Assign package, I explain the due on sale clause in more detail and why it is not something you need to worry about.
The Seller’s Dilemma
Right now the market is perfect for doing Sub2 assignments. Many homes are now underwater, meaning the seller owes more on the mortgage than the house is worth. There are sellers who can no longer provide the payments on their mortgage and are either struggling to make the payments each month or are behind in their payments and are facing foreclosure. In Find and Assign, I have a matrix that shows the various options a seller has on getting rid of their character, along with the costs of each. If you are able to show a seller how he or she can walk away from their character and making the mortgage payments without affecting their credit, you have a motivated seller, and one who would be receptive to your offer.
The Buyer’s Dilemma
In the past, all you had to do to get a mortgage was to fog a mirror. This method you simply had to be alive! edges and mortgage companies gave out loans to anyone who could fill out an application. There were no-doc loans, stated income loans, and loans for subprime buyers. Down payments we as low as zero. Flash forward to today. Now, you need to prove your income, provide two years of tax returns, bank statements, and have a credit score north of 680. What we have now are buyers who a few years ago could get a mortgage, but now who can’t. So, you are in the perfect position to sell unsellable homes to unloanable buyers, all by simply getting the seller to do a buy option unprotected to the existing mortgage and assigning this agreement to a buyer for an assignment fee. The new buyer gets the deed at settlement, and pays the closing costs.
There are many ways to find sellers, including posting ads on Craigslist and newspaper classifieds. A sample ad can say “We buy homes with little or no equity. Get out from making any more mortgage payments.” One fantastic way to find sellers is to call real estate agents and ask them to provide you with leads of those who want to sell, but who can’t because they can’t come up with the cash to go to settlement. You can offer the agent a referral fee. If the agent is honest and says that he or she can’t accept a referral fee, you can nevertheless legally pay the agent by having the agent become your buyer’s agent. When you get the house under contract and then assign the contract to the end buyer, at settlement the agent would receive their legal commission, depending on what you agree upon. In Find and Assign, I go over many other ways to find sellers for the Sub2 Assignment program.
Of course, you need buyers to complete the deal and to make money. You can find buyers by running ads that say “Buy a home with no mortgage qualifying. 10% cash needed.” You can run these ads on Craigslist and newspaper classifieds. You can also call mortgage loan officers and ask them for leads on those who want to buy a house but who can’t qualify for a mortgage. What you may have to do is simply give these loan officers your info and have them give it to the wannabe buyers. You can offer a fee to the LO on any deal you do.
Writing the Agreement
There are two ways to do this. One way is to write up a simple real estate buy agreement, where after your name you write “and/or assigns”. In the buy price section, you would write the price, then “unprotected to the existing financing as detailed in Appendix A. In the appendix, you would list the balance of the mortgage or mortgages on the character, and the existing monthly payment. There are no special forms that are needed. It is only the wording that you have to use. The second way is to write up a buy option on the home, using the same unprotected to language. You would then either assign the buy agreement or the option to the new buyer. If you use a buy agreement, you need to make sure you have the proper escape clauses that let you walk from the deal if you don’t find a buyer. You don’t want to truly buy the character, and that is what the agreement says. With a buy option, the seller is giving you the right to buy the character, but you are not committed to do so. If you don’t find a buyer to assign the character to in a 90 day period, you just walk away.
When doing these deals, there are also some disclosures that need to be signed by the seller, namely disclosing the fact that the sale is unprotected to the existing mortgage and that the mortgage will keep in their name. You also disclose the possible for the Due on Sale Clause. What I always suggest is that before you get started with this, you find a real estate attorney who has done Sub2 deals before. You can find one the same way I did, on Craigslist! In Find and Assign, I proportion with you how I did this, and what questions you need to ask. You also may need a title agency to close the deal, and I cover that in Find and Assign. Your real estate attorney should also know of one to use.
Closing the Deal
All you really have to do is get the end Buyer to write you a certified check for your assignment fee after they do their due diligence on the character, including a title search, inspection and so on. The title search will show you any and all liens that are attached to the character, along with any judgments on the owner and any back taxes that are owed. You can use any title agency to do a search. The fee would be around $60 or so. You can either have the buyer do this or have the seller do it and make it obtainable to possible buyers.
When you have a Buyer for the character, you want to refer them to your real estate attorney to get the deal closed. This way you have done your part to bring the two parties together and consequently earn your assignment fee. The meaningful is to have a real estate attorney involved in these deals and not to try a “kitchen table” close. You don’t want the seller of buyer coming at you because you did not disclose everything you should have. If you do this right, you can make a reasonable income by assigning just one or two similarities per month. If you do a search online, you can pretty much find everything you need in forums and other sites. There are no special forms, other than a buy Option, Assignment of buy Option, buy Agreement and of course the CYA Disclosure Form. Other forms that are involved are an Authorization to Release Information and perhaps a strength of Attorney. If you find a real estate attorney who has done these deals, this person can provide you with all the forms you need.
To Learn More
In my Find and Assign package, I provide you with much more detailed information on how to do Sub2 Assignments. This is all found in one of the bonus packages in the form of a 42 page guide, plus all the forms and agreements you need, including a very detailed disclosure form. I teach you many ways to find sellers and buyers, and already show you how to get others to look at similarities for you with no upfront cash. Along with this, you get a PowerPoint package that you can use with sellers, along with other useful tools and resources. There is no need to use hundreds of dollars on courses or workshops. Once you understand how to find buyers and sellers, and know what forms you need to fill out, you can get started doing this with very little cash. All you really need is the motivation and dedication to place ads online, and what to say to those who call you from your ads. In Find and Assign, you already get scripts and information to send to sellers and buyers.