In this series on how to sell houses faster, we’ve focused on using creative tactics and cutting out some or all of the middlemen involved in the process of selling single-family homes in the worst housing market since the Great Depression.
Today, we eliminate the process of creating loans using the financing that already exists for the house that we want to sell. Realizing as we go through an example that this technique could well be used in conjunction with other strategies.
Let’s say your house is in a good neighborhood and was worth $100,000 at the top of the market and today bank owned houses sell and set the compensation at $40,000. It should probably be around $60,000 if it weren’t for the bank-owned homes that have loss-leading prices. He has a thirty-year, $60,000 6 percent mortgage and a monthly payment of $359.73, which makes a monthly payment of about $550 with taxes and insurance.
If you go to a real estate agent, they may tell you that you should stop making payments, ruin your credit, and file for a short sale because you owe more than the house is worth in today’s market.
Or, you can list your home as a nice three-bedroom, two-bathroom home in a nice neighborhood with no qualifying mortgage and payments of $595 a month. Sounds like something that will make the reader of Craig’s List call you?
They should call because they have the same problem that you have: the banking system. If buyers could get loans to buy houses, there would be no housing crisis, they could get a loan because the offsets would not be artificially low, and they could get money from the bank to pay back the money they borrowed from the bank. They can not! And neither can you! SO!!!
You need three things at this point. A simple application that you can get at any office supply store. A service to perform a credit check, a hundred of them on the Internet. A real estate contract, also from the office supply store. The attorney you will use to close the transaction should also be helpful.
The contract is called a “subject to” contract. This means that the sale is subject to the mortgage. Your buyer is not “assuming” your mortgage. The mortgage will remain in your name and on your credit. The deed will be in the buyer’s name. For a home in this price range, you should have no problem getting a “buyer” to pay you $4,995 for the privilege of home ownership and make monthly payments of $595.
You, in turn, will make the payments of $550 to the bank.
You have the option of letting the buyer make the payments directly, but I prefer to be aware. Get paid and you pay the mortgage. So you will know immediately if something goes wrong and they stop paying. (One of the risks.)
Another risk is what is called the expiration clause of the sale of your mortgage. Thirty years ago, mortgages were affordable. That means the buyer could take over the mortgage and they, not you, were responsible for making the payments. That feature is no longer available in modern bank mortgages. A clause in the mortgage says that if you sell the house, the loan is due in full.
I’ve been buying mortgage-backed houses for twenty years and have never borrowed because of the due-on-sale clause. Banks just want to get paid. I have never met anyone who has called him. But, the banks could ask for the loan and they have the legal right to do so.
Realistically, the risk is that the buyer defaults, not that the loan will come due in full. The most likely drawback is that the bank will sell the loan. Therefore, we recommend obtaining three complete sets of paperwork indicating to the bank that the buyer is authorized to send money to and receive information from them.
While this approach offers some tremendous advantages—quick sale at a good price—it also requires a lot of detail, and if you’re new to it, you need the help of a good real estate attorney or real estate investor who’s done a few dozen times. And once you sell the house to the buyer, you won’t be able to get it out quickly if you don’t pay.
While I’ve used this same system countless times with no problems and you can too, the approach we’ll discuss tomorrow gives you all of these advantages and protection against many of the risks, especially the difficulty of getting the buyer out if you don’t. pay. Subject is a good system for you to buy houses with little or no risk. If you’re a seller, look into the Famous Rent to Own™ program covered in the next installment.