Subject to - Foreclosure

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 Okay, good to see you all again. You know, I did a video I've done. I don't know. I think I did about 40 videos and, um, I haven't had anybody watch hardly any of them. I think there might be the most I have is maybe 25 views on, on a couple of them a lot less than I thought I would get. But one of my more viewed videos was a short that I did about what does it mean when you buy something subject to? So I thought I'd put out a rather a little bit longer than a minute video on what it really means to buy something subject to. And I hope that, um, some viewers watch it cause it's, it's got some good information in it, but in any event, the, I call it how to purchase and control property for literally pennies on the dollar. And it's the truth. If you know how to use it, it's a great, it's. One of the greatest bargains in real estate is learning how to buy something subject to now you can buy every property you see subject to, I guess you could call if you're buying a, a property that has an FHA mortgage honor, that you're going to try to assume, I guess that's subject to, because you're buying it subject to the existing mortgage, but of course, most modern mortgage documents. Uh, won't let just anybody assumed the mortgage. So you may be facing some legal consequences on that, but this is this, this is a safe way. This is a way to buy something literally. And I think in my example, I think you're paying, um, 4 cents or 4% on the dollar for something that's worth a hundred thousand. So let's go ahead and go to the next slide. So I'm going to read from a text I have prepared and then I'll comment buying subject to as a term to describe when an asset is purchased with other, sorry, purchased with other outstanding items, still being owed a condo lien. Foreclosure is a perfect example of an investor buying subject to because when you buy a condo lien, foreclosure, if the owner, as I'm going to show you in this example, purchased the unit and got a mortgage. The lien foreclosure is number one, going to get to sale about faster. Uh, and there's a, there's a better chance that you're going to get to get to foreclosure sale with an association. But that mortgage that was used when the investor or the owner bought that property, it's still in place. And it's going to remain there after the HOA foreclosure. So this is the perfect example of buying something subject to Okay. Again, because I'm old, I made some notes and I'm going to read from the notes and then I'm going to comment. Um, but let's start with the slide HOA. Some of the more modern, modern, the considering that I'm in, I was, I was born in 1958. We didn't have anything like an HOA back in the day. Uh, they were just coming into their own probably into two thousands. There were, there was hos coming in and those are there. I mean, I guess they can be good. Um, but they're a fee that you pay for living in your house just to have the outside yard and the, and the common areas maintained. So it makes sense. Um, we didn't have common areas back in the day prior to 2000, I guess they didn't have medians and things. And if they did someone caught him, probably the county, but HOA, that can be a pain in the butt. And I'll tell you a quick story about Norman Jada sassy. I went to see her because I had a F I had somebody tell me she was gonna lose her house to foreclosure sale. That was initiated by an HOA because of the color of her mailbox. Her mailbox was the wrong color. So they foreclosed. And fortunately I was able to help her out. That's another story for another day, but HOA can be, I mean, it's like somebody that wanted to be a police officer that just didn't have the guts or the, uh, education to become one. So an hos are a pain in the button, but they are there and you can buy their liens at the sale. Same with condos, condo association. When you buy it a condo, it's mandatory that your fees paid either quarterly or monthly, um, each are paid separately and directly to the association. And if you're delinquent in your fees, a foreclosure suit will be filed. So I'm going to read from the text now, and then I'll comment on it. When a person owns a condo, or there is a homeowners association in their community as a part of their purchase, the owner agrees to pay certain additional fees. Usually for common area maintenance. Some HOA fees are voluntary while condo dues and fees are usually mandatory and are tied to the filing of the declaration of condominium, which is a document that's created before the building is even constructed. The recording of this document gives the condo the right and establishes the required title priority to file lawsuits for uncollected, condo, dues and fees. So you'll see in a condo lien, foreclosure, they'll be referring back to the original recording date of the declaration of condominium. That's where they're, that's where they're referring their, their, their priority begins at that date. The additional fees are separate and apart from the debt service on the unit, the fees are generally charged either monthly or quarterly and are paid directly to the association. So this is an additional fee on top of what your debt service is going to cost you. So you make your mortgage payment to one place and then you'll make your assessment or your condo dues payment to another. When these are not paid, the condo has the right to foreclose in an effort to collect the money that's due. Some condos have a very low threshold for foreclosure while others where sometimes wait to file. So my suggestion, if you live in a condo and you're going to run a little bit tardy on your, uh, association fees, go speak to the officers, make them understand that you have a circumstance that right now you just can not correct, but you will have it correct soon, make a promise to pay and stick to that promise. And they won't foreclose you out. So just as with most things in business, that decision is driven by money and the condos need to acquire it. But this is a story for another day. But so right now, let's go back to the, to the lien foreclosure. Once the decision to foreclose has been affirmed, the amount owed quickly increases. I've seen lien, foreclosures that begin with delinquencies for as low as $155. That when it finally makes it to final judgment, it's well over $5,200. So the fees and attorney's fees and costs court costs, they all add up. And if I want to go back real quick to the HOA on Norma, geodesy her fine was a hundred dollars for having the wrong color mailbox. And she went four months without paying it. So they initially filed a suit against her for $400. And that was enough to where her house was in jeopardy. That's how powerful these things are. So you really have to be careful when you're fussing with these things, but they are the perfect way to get into a property for pennies on the dollar. Let's go to the next slide. Okay. This is it. Now that I give him the background, I'm going to explain to you how this is done. And I really hate using the term Petties on the dollar because every other place you see it, it's not true. I mean, occasionally somebody can come up with something, but this is true. You're going to own, if you do this deal, as I described, in our example, you're going to own it for less than 4% of its value. So let's go to the next slide and I'll try to show you how that's done. Okay. Oh, I forgot to. I forgot to change the title. I don't even know what that means, but anyways, I was so calm. I was so calm. Um, I was with working on this. So, uh, so hard. So anyways, that's, let's just pretend that doesn't say anything, but then it's blank. But in the meantime, so here's the story. Barry buys a condo for a hundred thousand dollars. I'm going to read from the text and I'll, I'll, I'll make it all make sense here in a minute, Barry buys a condo for a hundred thousand dollars. It makes a 20% down payment there as up on the screen, which results in a mortgage amount of 80,000. There we go. He falls behind in his condo fees and they file a foreclosure in the amount of $1,200. So as you can see, here's this 20% down, $80,000 mortgage that equals the purchase price. All make sense, right? We've got $1,200 owed to the condo. They file a foreclosure action. And their final judgment is $3,500. So what happens is it goes to a sale, goes to foreclosure sale and an investor buys the F buys it subject to the first mortgage. So they buy the lien foreclosure subject to the first mortgage because the lien foreclosure does not have the priority to foreclose out the mortgage. That's why it happens, but here's the result. The condo lien. Now the amount of the judgment is $3,600, a $3,500 an investor ponies up $3,600 at the sale, which is $100 more than the plaintiff or the condo association required. Their judging was 35. Somebody paid 36. So now the investor bought this property for $3,600 and they bought it subject to the $80,000 first mortgage. You follow. You understand now, so essentially this investor that paid $3,600, they owe on this unit, $83,600. Now I hope everybody's clear on where I came up with that number. I'm going to do it once again. Quick final judgment was 3,500. The investor paid 3,600 and they purchased the unit subject to the existing $80,000 first mortgage that Barry used to buy the condo whenever he bought it. So now they owe 80,000, $83,600 on this condo. So the investor that purchased the property, that let's say it, hasn't gone up in value that at all, which is unusual in and of itself. But let's say it's still only worth a hundred thousand. This investor is, has bought this property for 3.6% of the value, not bad, right? So they're in this thing for 3,600, but it's worth a hundred. Their equity is substantially less than that because of the 80, but they're controlling a hundred thousand dollar piece of property for $3,600. And frankly, that's not bad. That's not too bad. You're setting yourself up for some success, but again, I'm going to read from the text and I'm going to comment, in my opinion, there's not enough equity in this deal to resell it and make even a small profit, the best exit strategy for instances, such as this is one that was perfected by my friend, Jason in Broward county. And there's Jason up there. Now, let me tell you what Jason did. Jason. When I first met him was a brand new investor. He started out with very little cash. That's why the lien foreclosures and trade them. Let's face it. You can buy these things for the hate to say it again. I'm not gonna, I'm gonna say a small percentage of the value has that. So that's why lean foreclosures intrigued him after a few short months and a few bruises. And Jason became an expert at selecting the right properties for his newest business model and what his business model was now, listen carefully. He would buy these condo liens. Let's use this as an example, $3,600. He's not worried about the equity. He's looking to pay off that $3,600 as quickly as possible. So if it's a condo that's worth a hundred thousand back in the day, our rule of thumb was that you can rent something out for 1% of its value. So Jason could rent this thing out for $1,000. So he paid $1,000. He rented the unit for $1,000 and he wanted to get it rented quickly. So if he can rent it for a thousand, he wanted to get it rented quickly. He'll run it for 800. So he's going to rent it for 800 out of that. He's going to take, let's just round up $300 for a condo fees. So he nets $500. So in seven and a half months, he has all his $3,600 back. And after he gets that back, all of the pro all the rest of the money is profit. So one of the things you have to do with regard to using Jason's business model is that you have to select the properties wisely. If, for example, in our, in this, in, in my example with Barry, if there was no mortgage foreclosure filed in Florida, what that means is that Jason would be able to rent that unit out for well over a year, probably into year and a half. Now you only paid $3,600 and at $800 is what it costs him. He's going to be playing with house money on month eight, and he still got seven more months to go. He's going to, he's going to bank a big profit on that thing. So one of the things when you're buying subject two is you have to be certain what the mortgage foreclosure status is. So I hope you understand that because it's an interesting concept. It's not for everybody, but it can work for almost anybody that applies it. Okay. Here's the summary of what we just talked about, and I'm going to read it from the tax and I'm going to comment an investor, buying a property to lien. Foreclosure is most likely purchasing subject to an existing mortgage before investing in lien, foreclosures and investor must first investigate the status of the mortgage to determine if the situation fits into their business model. Once you can master the dynamics of condo lien, foreclosures, it seems a perfect way for investors to enquire properties that might fit well into a business model. That includes short term rentals. I mean, I don't even know the name, all these short-term rental companies, but if you think about it, you can control a million dollar condo and they're on the beach and they go all the time. Imagine controlling a condo. That's at the penthouse of Williams island that overlooks Biscayne bay in Miami. And you're going to rent those things out with, I don't know, I don't even know the name of those things, but the rent amount, short term, you can really make some breads. So someone that does short-term rentals meant, I hope you take a hard look at this. So let me just see, let me just go ahead and summarize, summarize that again, buying subject to, to any existing mortgage liens. We know that that's there because the lien foreclosure does not have the priority to foreclose out mortgages. And what's interesting is that there'll be some condos that come along and they do not allow mortgage foreclosures to have priority over their condo liens. And, you know, you'll find those that are, they don't go up in value. The reason they don't go up in value is because people can't get mortgages to buy them. You have to pay cash. So those are no good for investors because they never go up in value. Um, but so, like I said, most of the condo leads you're going to buy, you're going to buy subject to the existing mortgage and HOA lien, foreclosure. They're perfect for certain business models, determining the mortgage status and the foreclosure timeline in your state is crucial. For example, if you're in a nonjudicial foreclosure state, your foreclosures are going to bum rush right through six weeks. And you're done In Florida six weeks. You're barely going to have the summons issued and even get one person served yet. So it all depends on the state you're in whether it's judicial or nonjudicial. And again, lastly, I'm going to, I'm just going to reinforce it. This is an excellent business strategy for investors in the short term rental business. And one of these days I'm going to do one of these videos, and I'm going to remember the name, what those things are called. But in the meantime, take a look at lien foreclosures because you can make a bucket of money, especially if you're gonna rent them out. Short-term at a higher rate in any event. Thanks for attending. I'm glad you, I hope you learned something. This is Alfred Einstein for pockets of specialized knowledge. I'm wishing you a great week and I'm sorry. No. Purple jacket. It's just too hot to wear. See you next time.