The Magic of Getting the Deed with Terry Penny

Terry Penny After graduating from business school at age 18, She was headed for the entrepreneur life. At age 19, She started and ran a successful legal service for 9 years and provided services for over 200 attorneys in the Metro Detroit area. She enthusiastically entered the real estate industry at age 23 and has never looked back. Real estate has been my passion for over 30 years, and she mentored several new investors across the country since 2001. She had the pleasure of providing consultations, corporate structuring, and business & real estate financing for my clients. She is a mom of 4 boys, and after the passing of her husband in 2020, She felt the need to obtain my Life Insurance license to help families with their estate planning and to avoid the financial burden when a loved one is lost. Please feel free to reach out to me for your real estate, financing, and insurance needs.

Terry:

The ideal scenario would be someone in a distressing situation, but not necessarily. The property is in a distressed condition. It might be someone who was the house is upside down, meaning they owe more on it than it’s worth.

Brett:

What’s the number one secret for getting the deed or getting the deal done?

Terry:

Well, subject to the magic of getting the deed is a real estate strategy. Some investors know how to do this, some don’t. It is a little bit of an advanced strategy. But it’s an excellent way to be able to take a deal down that has no equity or somehow wouldn’t usually fit into a deal that most investors are looking for. The ideal scenario would be someone in maybe a distressed situation unnecessarily. The property is in a distressed condition. It might be someone who was the house is upside down, meaning they owe more on it than it’s worth. So what are you going to do with that, right? I mean, they can’t sell, they can’t afford to sell, they may have just bought the property, and their job might be moving them out of state. They don’t want to be a landlord, right? Some people have heard all the horror stories, or someone may have just lost their good paying job right after they bought this beautiful house maybe a year ago, they can’t afford it anymore, and they’ve already fallen behind on some payments. So basically, as an investor, you come in, and you want to solve problems. And this is a problem; people don’t want to risk their credit by having a foreclosure on their record, or, you know, they want to preserve their credit. They don’t want to be a landlord. So as an investor, you can come in and offer to purchase the property subject to, so that’s a phrase that a lot of investors have heard of the subject to. It’s a strategy, but they don’t understand what it means. So subject to, if you understand, contingent upon. So basically, you’re saying I will buy your house, subject to the mortgage staying in place or contingent upon the mortgage staying in place. So this allows the seller to move on. And then, as an investor, you’re coming in. You will get the deed because you’re buying the property. The difference is the mortgage will stay in the seller’s name. You essentially just take over their payments. So this could be beneficial to someone that doesn’t want to ruin their credit. You have to come in as a professional real estate investor, right? I mean, your reputation. And the trust factor is huge here. Because the mortgage is in their name, they depend on you to make those payments for them. So as an investor, obviously, you have to analyze it properly to see make sure it’d be a good deal for you. But often, as an investor, your only option would be to hold that property as a rental. Because now you’re in the same position, there might not have any equity more than it’s worth. You hold it as a rental long enough. Eventually, there’ll be equity, there’s cash flow, and it’s not such a bad deal for the investor.

Brett:

Okay, so is this also kind of known as a wrap, or essentially, the seller is going to say, hey, either I can’t afford it or don’t want, I want to sell it. But some good. There could be some decent interest on me with a lower interest rate; they got it about a year and a half ago versus interest me where they are now. And they’re saying, Hey, don’t assume my debt because there might not be a due on the assumption set clause, right? Where the bank would say, well, now, no need to do. So we’re going just to wrap it where the buyer is going to purchase the property, and then just continue to make the payments on behalf of what to be themselves or where to be on behalf of the previous seller or explain that part of it.

Terry:

So a wraparound mortgage kind of consists of two existing mortgages, the original mortgage and then a new mortgage, which would wrap around there. I’m not now. I’ve never done a wraparound mortgage, but I’ve heard of them. I’m not sure if the deed transfers at that point. A land contract is also an option. But then again, two payments are being made. There are different interest rates and so forth. This is the seller who is on board and trusts you, and this is a much cleaner way to do it. There’s essentially a deed over to you. And then you’re taking over the payments. Now there is a due-on-sale clause on every mortgage. And you always take that risk of the mortgage company calling that mortgage due and payable because there was a sale. It’s not the end of the world if that happens, but to stay under the radar where you’re just most payments are made electronically right now, they’re not monitoring where those payments are coming from. Okay, so you don’t want to be in a position where the seller is forced to pay off that mortgage. If that does come up, you know, there’s no do-on-sale police, right? They’re not regularly doing title searches to see what you got.

Brett:

So what’s the risk for the buyer, then? So the buyer’s buyer gets the property right, but, you know, it continues to make the payments. Do they have any, you know, the risk that the seller may come back and, you know, well, no, there’s nothing,

Terry:

there’s your typical Purchase Agreement, which spells everything out, and then you’ve got disclosures. The disclosures make it very, very clear what’s happening and what they agree to. And they’re, you know, on board with everything, so that will prevent them from coming from coming back and saying I didn’t agree to this.

Brett:

got it. And then the risk for the seller is that the buyer doesn’t continue to make the payments, and ultimately their credit ish the seller’s credit is shot. Is that correct?

Terry:

Right, which probably would have happened anyways, but that’s what I’m saying with this something like this. You’re staying in the deal, and your credibility means everything you want to do what you say you’re going to do. You want to continue to make those payments. Okay?