Rob Alley

Data from RealtyTrac.com shows that Spotsylvania County had the highest foreclosure rate in Virginia in February.

According to the data, statewide, one in 679 housing units received a foreclosure filing in the last month. That includes notices of default or auction sale, and bank repossessions.

The national rate was one in 440, up from one in 466 in January.
In Spotsylvania, the rate was one in 199 housing units.

The top of the list of Virginia's 134 localities also included Stafford County, Manassas, Prince William County, Orange, Caroline, Culpeper, Fauquier, Fredericksburg and Louisa.

Taking over a property "Subject To" an existing loan is not as hard as it may seem as long as you know what it is.

If you know what it is and how to explain it to the seller, and what steps to use to protect the loan from being called, you can buy many more properties faster than you can if you have to go get new loans on each purchase.

Here is how . . .

When financing a property, the note says I owe x amount of money and the Deed of Trust or Mortgage says, "here is how the lender proceeds to take over the collateral or sell it if I don't pay the note as agreed upon." Generally, the person borrowing the money is personally liable on the loan. This means that if the collateral that backs the note, once sold, is not enough to cover the debt, the borrower must make up the difference from their other resources.

Traditionally, if you don't get a new loan when you buy a property, you will take over ownership and "assume and agree to pay the loan as was agreed upon."

However, for many years now, lenders have had a "due on sale" clause in their collateral agreements. This means that anytime the original homeowner sells or transfers any interest in the property to someone else, the lien holder may (but does not have to) require full payment of the loan now rather than continue to accept payments.

In the early years of the "due on sale" clause, the current interest rates were much higher than the rates on old loans, so lenders had a good reason to call the loans due where the "due on sale" had been violated. Now that interest rates have reached historic lows and interest rates are still low, lenders in general have not been filing "due on sale" cases at all. And, as a rule, unless something out of the ordinary happens, the lender never notices that a transfer has occurred. If you don't make the payments, they will notice. If you cause them a lot of paper work, they will notice.

Taking a property "subject to" existing mortgage means that you get the deed but you do not assume the loan. The loan stays in the original homeowners name, but you now control the property and make the mortgage payments on it. If you don't make the payments, you could lose the property and any equity in it. However, if you don't make the payments and you lose the property, there will be no personal liability beyond the loss of the property.

Typically homeowners who are behind on payments, in foreclosure or have no equity in the home are the most common types of motivated sellers you will be dealing with and perfect for buying "subject to". Even though these types of motivated sellers will agree to almost anything, it's a good idea to explain what you are doing, how it works and how they can benefit from it. They will benefit because you will be making their payments on time so it will help their credit. If they are concerned about what you are doing, you can explain to them that the risk of losing the equity is enough to keep you from missing payments or you can use a clause where you agree to pay off the sellers loans within a certain amount of time.

If they still are unsure, you could have some sort of an intermediate collect and disburse the payments. An intermediate would be a loan servicing company or trust company that can do this for you. Another idea is to have the seller open a savings account at the Savings & Loan that is carrying the loan, and you make the payment into that account and set that account up for auto pay of the loan. This way, the seller can check the account and see that the payment was made and paid out.

The idea has the added advantage of the S & L still seeing a payment come from whoever they were accustomed to seeing it come from.

The biggest problem comes with insurance. You must have insurance. And the homeowner's policy is only good for 30 days after the transfer. So, for starters, call or write the insurance company that has the existing policy, and ask them to add you to the policy. If you do this, remember to follow up in two weeks and change the policy to a "renters" policy rather than a homeowner's policy. Or, get a new homeowners policy in both your and the seller's name. Or just leave the original policy and go get a second policy. But now you have two insurance payments.

Yet another approach when dealing with insurance on subject to deals is to use a land trust. A land trust holds title to real property and is commonly used by homeowners for tax purposes and estate planning. The homeowner would be the beneficiary and you would be the trustee who carries out orders and controls the property. Then you would write a letter to the lender explaining the change and all correspondence be directed to the trustee who then changes the policy. To protect your interest in the property, beneficial interest would also be assigned over to you.

There is a chance, as interest rates climb in future years, that lenders will be more interested in who is making the payments. But the sure way to catch their attention is to get behind on payments. So those of you who are using "subject to" as a tool, make sure you do everything else by the book and on time.

Each state has different laws or requirements when performing or structuring a simultaneous, double or back to back closing and they're always changing. What they could do 5 years ago, they may not be able to now. Some states don't allow simultaneous closings, others do. Some title companies allow this, other's don't. It's in your best interest to search diligently for a title company that will handle this unique way of closing on a property. They will be able to assist you in making sure it is performed properly according to your state's laws and regulations

Double closings and simultaneous closings have been around for awhile so don't give up after you talk to 15 title companies and each tell you it can't be done. Talk to investors and real estate agents who invest, get referrals until you find a title company that is creative. The right title company is worth their weight in Gold. Once you exhausted all your options, just remember, there are more creative financing options when buying foreclosures.

There are several ways in which you can perform a simultaneous closing double closing, or back to back closing. I am going to discuss one way to do it with foreclosures that are in default. In a nutshell, this is how it works. First you take control of the homeowners property via a Land Trust. This prevents any other judgments going on title before you get it closed. It also prevents chain of title issues and due on sales clauses. Either you or (preferably) your company becomes the Trustee of that Land Trust. Beneficial interest is signed over from the homeowners to another company with the proper paperwork. You can't have the same company being trustee and beneficiary or you have a conflict of interest and may cause title insurance issues.

Once you have negotiated the debt with the lender, your company, purchases the home from the homeowners for the agreed negotiated price. Your title company will prepare a HUD for this transaction. Your end buyer will then provide funds in escrow at title company. When your end buyer runs a title report, it still shows the homeowners last name in the form of a trust on title. So there shouldn't be any title issues.

Then your company sells the property to the end buyer. This is done simultaneously through your title company. Your title company wires the negotiated debt amount to the foreclosing lender. This must be the same as the first HUD 1. You get to keep the difference from the negotiated payoff amount with the bank and your end buyers purchase price minus any closing costs. It is best to consult with a legal professional or title company to find out if your state allows simultaneous or double closings. Each state will vary on procedures and your title company will assist you in the process.

Disclaimer: Every state is different and laws continue to change. This information is presented with the understanding that neither the publisher, author and or staff are engaged in rendering accounting, legal, and financial or other professional services. If legal advice or other expert assistance is needed, the services of a competent professional person should be secured. Considerable efforts are made to provide the reader with timely and accurate information; however there are no guarantees.

So many first time investors are curious about hard money lenders. Who are they? What is it? How do I get some? Is it beneficial? Let me share with you some of the basic principals about hard money lenders. First of all, lets determine what the term "hard money" means. When money is discussed between investors, it is considered to either be "soft" or "hard". Typically soft money is easier to qualify for and the terms are flexible. Hard money, on the other hand, is just the opposite. It is much more restrictive. Not in that it's more difficult to obtain, but the terms are very specific and much more strict. They have to be, because most hard money comes from private individuals with a great deal of money on hand. This is why hard money is also referred to as "private money". The money used for investment purposes comes from people, just like you and I, not a typical lending institution. So their first priority is to protect their investment capital. This is why the terms have to be so strict. If it were your money, you would want the same.

So what are some of the terms of "hard money lenders"? Obviously it varies from lender to lender. It used to be that hard money lenders would lend solely based upon the deal or property at hand. They would only lend up to a certain percentage of the fair market value of the property, that way in the event of default, the hard money lender would profit handsomely if they had to foreclose or sell to an end buyer. Now, you will find that many hard money lenders, if they want to stay in business, require more than just equity to qualify. This is because the laws now are favorable for consumers. Consumer protection laws, time consuming and expensive court procedures, and so on have forced some hard money lenders to become even harsher when applying for a loan.

It is good to know what the terms are when dealing with a hard money lender so you can find the one that will fit your needs. Here are some of the terms you can expect to see. Typically they will only loan you up to 70% ARV (after repaired value). This means that a hard money lender can loan you up to 70% of what the home is worth in repaired condition. So if you find a home worth $45,000 in the condition it's in, and needs $20,000 in repair work, and after it is repaired the current fair market value is worth $100,000, then typically they can lend you up to $70,000, which would cover the cost of the house and the repairs.

Other terms you can expect are high interest rates. Interest rates vary from 12% - 20% annually and terms can last for 6 months to a few years. Many times these rates vary depending on your credit score and experience. In most cases, there will be closing costs or fees to use hard money. Typically hard money lenders will charge anywhere from 2-10 points just to use their money. One point equals one percent of the mortgage amount. So charging 1 point on a $100,000 loan would be $1000. These are all important things to consider when choosing a hard money lender.

Other things to consider are how quickly funds will be available. Many times, when you find investment properties, you need to move quickly. Your ability to get access to money quickly can make all the difference. It's important to begin relationships with potential hard money lenders as quickly as possible. You also need to be aware of pre-payment penalties. Pre-payment penalties can really hurt your deal and cut into your profits substantially. Try to avoid pre-payment penalties.

Many hard money lenders today will also require you to fill out a credit application that may ask you for W-2's and or tax returns, your most recent pay stubs, and bank statements. Again, it's all about protecting their assets. Yet, some like the old fashion way where they only care about the deal so they do a drive by or physically look at the property. Again it all depends on whom you deal with.

When should you use a hard money lender? Hard money is great for beginning investors who may not have money or for those who have bad credit and cannot qualify. Investors also use hard money when they need to purchase quickly. Typical soft money or conventional loans take 30 days or more. Sometimes that is to long. Using a hard money lender is also a creative way to finance a property. Most like to call it "Nothing Down". If you can borrow enough money to buy the property, fix it up and then sell it under market value for a profit, then you've just made money without any of your own money. Sure it will cost you money to borrow that money, but the rewards out way the expense.

How can you find hard money lenders? There are hundreds of hard money lenders waiting to lend you money. It could be your next door neighbor. The best way to find hard money lenders is to talk to a mortgage company and ask for referrals. You can also call a title company or a real estate agency. They deal with buyers and sellers of houses every day. Shop around until you find the best one that will fit your needs. Another way is search online for hard money lenders. Some will lend nationwide - these typically want a credit check. If you find a hard money lender in your area, they may just do a drive by.

A tax lien certificate is nothing more than a lien on a property for not paying taxes. Essentially, each and every year owners of real estate have a tax lien (aka financial obligation to pay taxes) placed on their real estate. If the property taxes are paid on time the tax lien is removed. If they are not paid, in due time the county government will allow investors to pay on behalf of the real estate owner. The winning bidder at the public tax lien auction receives a tax lien certificate as proof of purchase. As the owner of the tax lien certificate the investor may expect one of two possible outcomes, 1) An annualized return of 16%, 18%, up to 50% per year on what they paid to obtain the tax lien certificate or 2) Through foreclosure, become the owner of the real estate free and clear of any junior liens (aka mortgages and mechanics liens).

Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.

For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.