Clarification question regarding Quit Claims/ Lease options

Clarification question regarding Quit Claims/ Lease options


I have a question correct me if I'm wrong, confused,or not using the proper terminology.

I've heard of a process in which you:

-Contact homeowner(in pre-forclosure)

-Let them know you can help them avoid scars on their credit by clearing up their back payments and making their payments on their existing mortgage with the agreement (through a quit claim and some other forms) that you are going to complete the full purchase in say 2 or more years.

In order to contact the bank on sellers behalf you:

-Need a written document signed by homeowner giving you authorization to speak with the bank on their behalf.

When you contact the bank you just need to verify:

-The balance and rearage

-notify them that your going to clear up the rearage and make payments on this loan for the current homeowner(not stating you are going to buy it).

At this point the homeowner moves out:

-You find a renter (with just a few little scars on their credit that can be cleared up within a year)

-Do a lease purchase or rent to own agreement with them for a little more $ above the payments that you are making, stating in 12 months they are going to purchase the property for an agreed upon purchase price (hopefully higher than what your going to be paying off the original homeowner).

FINALLY Smiling the questions are:

1. Is this considered an assumption of mortgage (if it is this post is pointless because assumable mortgages don't exist anymore)?

If not:

2. What would be the correct title(s) for this type of transaction?

3. What documents are needed for this transaction?

Thank you in advance for your input.



"Subject to"

I have found that the above statement has been referred to as "subject to". Is there an actual name for the transaction..i.e. for presenting it to the homeowner with a title?

Thank you in advance..



Is the amount left on the mortgage considerably less than the FMV of the house?

If so, then you will deal with owner to buy the house just like any other house. You can discuss assuming the mortgage. To my knowledge, but I could be wrong and would be news to me, that is not extinct for qualified persons. Otherwise, you would simply do a normal sale, getting financing to satisfy the liens, then it is quit claimed to you.

A quit claim cannot be done on a property with liens. Whether it is a fraudulent conveyance (meaning you just can't do it without breaking the law) or the liens will still exist on the home which both you and the owner now become responsible for probably depends on the state, but the best I can say it just can't or shouldn't be done without paying off the liens before quit claim.

If does not have substantial equity, then you need to negotiate a short sale with the bank and owner. There could some laws and/or contract language that may prevent the owner from occupying or having any for of interest in the property once it has been short saled. The reasons for this is pretty obvious, so check into that.

The lease back is all secondary to actually locking your offer up.

Someone who deals with short sales and/or private transactions via quit claim can probably give you a better answer.

Ahh, reread that...

Ok, I see what you are doing. I thought you were offering a lease back to the owner (you would buy the property and let them live there still with the option to buy).

Instead, you want them to give you a lease option so they can make their mortgage payments and you have an option to buy it at any time.

Ok... that is possible. However, this one again is not something I am personally familiar with. I would wait for someone to answer this.

I see some potential hiccups though:
If the rent is less than the mortgage payment, you need to trust the owner will always make up the difference. If not, I would pay the mortgage company directly to avoid the house getting lost to the bank without even seeing it coming.

So assuming that is covered... I GUESS you need to do the following:
Get a lease option between you and the owner. You cannot assume the owner is going to pay out of pocket during closing, so the price you offer is balance of the mortgage at that time, which hopefully has a lot of equity at that point in time.

Get a lease option between you and the renter, which needs to say it is all contigent upon you exercising your lease option. I say this because playing the middle like that could set you up for some problems if for some reason the owner does not actually sell it you at that point in time (yes, they will be bound by contract, but that could take years to settle - but you put someone else's money in counter party risk without informing them unless you have that language in the agreements).

Honestly, you need to have someone else chime in here. I don't even know if you can legally do something like this because you will be giving someone a lease option on a house you don't technically own. The language will all need to be in order on the contracts and the situation up front which makes it all sound not much more secure than renting to the end person.

Now, I could be wrong here and this is an interesting arbitrage strategy for sure! I just don't know how to do it right. I do not think you can quit claim the house without paying the mortgage in full. Otherwise, yes, that would have to be agreed by the mortgage company that you assume the mortgage to have it quit claimed to you. If you do not want to or can't take on the risk of the mortgage in your name through any channel (assumption or your own financing), then your only option I see is the one I described, which might not be legally possible to do.

Thank you for your input

To start I want to thank you greatly for even taking the time to respond to my question.

I fully get what you've explained above.Smiling I think you may have misunderstood my example and now that I reread it I can see how. (I never plan to write a book..people will be lost).

To shorten it a little. Basically in a "subject to" owners financing what documents would you need to complete that transaction. i.e. what docs and wording would you need?

Also once that transaction is complete what docs would you need to lease it to someone that's going to buy?

And my final question (because it's getting as long as my original is there any way to avoid the bank calling the mortgage due? If they do what would be a good escape clause to place in your contracts to avoid you losing alot of time and $$.(ok my last two

Thank you in advance..


Syndicate content