|Book Excerpts from "The TurnKey Investor's
'Subject To' Mortgage Handbook"
The Hidden Trap of "Subject To" Deals:
The Doctrine of Implied Assumption
When we buy any property ("subject to" mortgage or not), we take our financial
commitments to lenders very seriously. We treat "subject to" mortgages and pay on
them as seriously as if they were our own.
Unfortunately, not everyone who engages in "subject to" mortgage
transactions does so. To make matters worse, there seems to a prevailing belief in
certain circles that if you buy a "subject to" mortgage and the deal somehow goes bad,
there is very little risk to you.
Of course, how widespread this belief is depends on the state or community
in which you work, but I will say that I do not entirely agree with this belief. There is
the matter of personal and business reputation if you work in a smaller city
community as we do. But there is also a legal risk.
According to James Karp's and Elliot Klayman's textbook, Real Estate Law,
5th Edition, a number of states have extended responsibility to the buyer if the
buyer engages in a "subject to" mortgage transaction under the Doctrine of Implied Assumption.
Under this Doctrine, although we have not formally assumed the loan, by
virtue of having the property in our name, taking over the loan payments, and profiting
from it, we are considered, as buyers, to have assumed the terms of the loan and
could suffer liability if something were to go wrong.
Of course, this assumption would have to be proven in a court of law, but
nevertheless the risk exists for anyone who chooses to buy a property with a
“subject to” mortgage. We may not have formally assumed the loan, but what we do
can very well fall within the realm of implied assumption.
Naturally, you should consult your local real estate attorney in such matters if
you are truly curious about this issue.
However, we take a conservative approach. We simply assume that once we
buy someone's property with a "subject to" mortgage, we are on the hook for the loan
and the responsibility fully lies with us.
This thought is a great motivator for us to enter into only profitable deals and to
continue to be financially responsible.
The 6 "S"s of TurnKey Investing
TurnKey Investing is about the 6 basic values that guide what we do. Each
of these fundamental values exists within our preferred method of real
estate investing: the Lease-Options strategy.
For investing to be a turnkey system, it has to be simple to understand and
simple to implement. Most importantly, it has to be simple to invest in.
Turnkey investing is about safety, not speculation or "sexiness" of the idea.
Turnkey investing creates safety through experience, certainty, and risk management.
Turnkey investing is about delivering steady performance. It is about carrying
out essential activities in an even-keeled, consistently, steady way. It is about
avoiding dazzle and drama in the day-to-day activities.
The way we protect our investment partners in turnkey investing is about
offering security (collateral), not just a promise or a good story. With real
estate, the investment property is often the back-end security to a secure investment plan.
Within our investment portfolio, our turnkey investments generate spendable
cash flow each and every month. This is not perceived equity or compounding the
returns. We create spendable returns for ourselves and our investment partners.
They can choose how to deploy the spendable returns they receive.
© 2005 Matthew S. Chan. All rights reserved.
Turnkey investing is about creating and developing a duplicatable system of
tasks that can be used over and over. We create and execute a management,
marketing, and investing system with a turnkey philosophy in mind.
Matthew Chan is the author of
"TurnKey Investing with Lease-Options",
"The TurnKey Investor's 'Subject To' Mortgage Handbook", and
"The TurnKey Investor's Lease-Option Documents Collection".
You may contact Matthew at 706.565.5090 or you can email him at: firstname.lastname@example.org.
You can also find Matthew at MatthewChan.com.
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