Since real estate values have plummeted, Subject-To deals have been harder to do because most of the time, the mortgage balance from the seller is higher than the property values creating a situation that if we took over the sellers property and started making payments on their existing mortgages, then we would end up with a property that we could not make cash flow or even resell without having to pay down the mortgages ourselves.
While some lenders were accepting short sales, most lenders were waiting for their bail out from the government. Since that never happened, some lenders have been more susceptible to short sales. While short sales have been our only way to deal with over leveraged properties, we were forced to resell the properties to pay off the short sale. Which meant that Sub2 deals were not taking place which is why according to the National Association of Realtors®, about 50% of all transactions in the 4th Quarter of 2008 were either Foreclosures or Short Sale.
According to Bloomberg “ Citigroup Inc.’s agreement to back legislation that lets bankruptcy judges cut mortgage rates for at-risk borrowers drew criticism from bank industry lobbyists who said the compromise with Senate Democrats was flawed. Citigroup endorsed the bill after Senate Banking Committee Chairman Christopher Dodd, and Senators Charles Schumer of New York and Richard Durbin of Illinois, said they will limit the legislation to existing mortgages, rather than future loans. Durbin, the Senate’s second-ranking Democrat, brokered the deal with Citigroup and sought similar agreements with other lenders.”
While I don’t like it when private companies broker deals with the government, this does give investors and homeowners alike a little bit of hope. This means that Citigroup has seen the light and realize that they need to start lowering mortgage balances and possible even adjust interest rates to current market rates to enable homeowners to keep their existing mortgages in place. While this will help a lot of homeowners, it will also help investors.
This could possible mean that investors can now work with homeowners who want to sell us their properties. All we have to do is take title to the seller’s property Subject-To their existing mortgage and rather than having to attempt a short sale, we can try negotiating a modification that would restructure not only the interest rate, but also the principle balance. There by allowing us to start making those mortgage payments and still being able to resell the properties on a Lease Option with a positive cash flow and a little bit of equity.