By Jason Hanson
The author has permitted the reprinting and redistribution of this article.
Recently I was helping someone who was working on her first subject-to deal (the best way to buy property). She sent me over the contract she was going to use and it was a simple, plain contract that probably came from an office supply store. I quickly informed her of the importance of having an investor friendly contract created by a lawyer.
Many people know that I have spent over $1,200 on many of my contracts. Because we are buying and selling houses that cost hundreds of thousands of dollars, I want my contracts to be IRON CLAD.
Two months ago, a partner and I got screwed by a seller who changed their mind about selling the house. Now, we didn’t sue this seller, however, thanks to clauses in this contract, we got reimbursed for all of our expenses, plus $500.
When you do a subject-to deal you must have a specific subject-to contract. Here are some of the important clauses from my contract (but as always, seek competent legal advice)
A check in the amount of Ten-Dollars ($10.00) shall be deposited into the Escrow Account of the Attorney for the Buyer, the receipt of which will be acknowledged by the Attorney for the Buyer (“The Deposit”)……you will use this clause in every transaction you do. Remember, we’re investors, only suckers put more than $10.00 down!
This property is being purchased “Subject To” the existing First Mortgage- currently owned or collected by____________……..just enter in the name of the mortgage company
The Seller represents that the principal balance of the First Mortgage as of date of settlement shall be no more than ______________________ Dollars ($______)……use the authorization to release form to verify all mortgage balances.
The purchase price of this property is strictly predicated and contingent on the Buyer paying a total of no more than _____________________ Dollars, ($_______) for the property. Should there be any additional liens, mortgages, andor judgments existing on the property as of the time of settlement, it shall be the responsibility of the seller to pay these amounts…..this clause just reiterates that we’re only taking over the loan balances and not paying anymore.
Buyer is talking over seller’s mortgage payments amounting to $________ Dollars a month. Buyer is only responsible for this amount. If interest rates increase, seller is required to cover any amount over the current monthly payment of $___________ a month. Should the interest rate increase on property, seller will immediately be notified in writing and will be required to cover the difference. If seller does not cover any increase above $__________ a month, then buyer has the option to stop making the mortgage payments and the property may be foreclosed on and the sellers credit may be severely damaged……this is a crucial clause so that you don’t have negative cash flow. Or, in case you thought it was a fixed mortgage and it’s really an ARM, you won’t get screwed.
If you’re going to play with the “big boys” and be successful in this business, one of the foundations of your business should be the proper paperwork.
Jason R. Hanson is the founder of National Real Estate Investor Month, author of “How to Build a Real Estate Empire” and mentor to students all across America. To get a FREE copy of Jason’s Special Report “The Insider’s Guide To Buying Your First Investment Property in 83 Days or Less!” visit httpwww.PrimoCoach.com or call 800-865-1702.
If you would like to take advantage of the market and learn how to invest in real estate and you are local to the Dallas Fort Worth area, I know a really great teacher and mentor here in Arlington Texas. Please take a look at his web site: DennisJHenson.com, Dennis has a great Mentoring and training program, I know because I am one of his former students. I learned a lot from his one on one teaching technique. – Michael Harman 817-457-7572 firstname.lastname@example.org>