A Major Subject-to Pitfall That Can Cost You Your Deal
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Share: There is a simple question that you must ask every owner of a property who is considering selling it subject-to
. It should be the first question out of your mouth, because the answer to this question will determine whether or not the deal can ultimately be closed. Fail to ask this question, and even if you fork over the down payment, attend the closing and watch your name get written on that deed, you may still lose everything to the Federal Government. The question is simple:
Have you filed for bankruptcy?
Most investors know that you need to check up on a lot of things before you get financially involved in a subject-to transaction. You need to know what liens are on the property. You also need to know what condition the mortgage is in (late, on its way to foreclosure, in foreclosure, etc). Based on this information, you will know how much money you will need to front as the new owner in order to avoid losing the property to the holders of the debt. However, no matter how much you pay or how carefully your subject-to contract is crafted, if your homeowner is in bankruptcy or enters bankruptcy before the deal is closed, you cannot do anything without the approval of the United States Bankruptcy Court. And that includes recouping your investments made to bring the loan current and any payments you may have made to the lender.
Clearly, this can be a sensitive subject for the homeowner, but it is an issue that simply must be addressed before you can enter a subject-to deal. It is also a good reason to conduct your subject-to transaction as quickly as is reasonably possible with your due diligence once you have reached an agreement with the seller. Depending on how dire their situation is, they may feel that they have no choice but to enter bankruptcy should the buying process drag on. You can check the county records to see if the homeowner has filed bankruptcy. If they have, it is a matter of public record and you can exit the deal before you lose your money into the system and have no way of getting it back.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit
www.CoachingByPeter.comby: peter V
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