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Hey Everyone!

Me and my father found a deal in our area, and this man is willing to sell it to us for the debt balance and give us about 10% equity in the property. The payment is low and it's in excellent condition, he recently put 30k into the property, new kitchen... granite countertops etc.

Anyways, it all looked good... but then we listened to an excerpt from the green FSBO course where Ron says that Credit Lines will always get called due because the bank lost it's collateral and the borrower can draw more from the credit line and then call bankruptcy.

The second mortgage on this property IS a credit line. I know we would want it closed before we buy it so he can't borrow any more money. But do any of you have experience with Banks calling Credit Lines due upon transfer of title? If not... how do you avoid the issue?

I was thinking of buying it on Land Contract and just recording a memorandum. What do you think? Thanks.
Edited by Apprentice on Oct 28, 2007 at 12:42 AM
Edited by Apprentice on Oct 28, 2007 at 12:42 AM
Edited by Apprentice on Oct 28, 2007 at 12:43 AM

Hmm, how to answer this...

Well, first off... I have never ran across a homeowner that had a HELOC, but as you learned from Ron's course, you don't want to keep it active UNLESS it is maxed out, and there is no way that the homeowner that you are getting this house from has any access to extra funds. That can make a good deal really bad.

As far as the 2nd calling the note due and payable, I am pretty confident that as long as you continue paying the monthly payment, you should never have an issue... They want the $$, and as long as you don't give them a reason to check title, there is no problems... Besides, if you title it right, by putting it into a TRUST, that has the homeowner's name in it, it will appear to the lenders as just a ESTATE PLANNING tool, and that the property appears to still be owned by the homeowner.

Anyway, the only concern that you have is that the homeowner having access to free $$, through the HELOC. What I would do is talk with the 2nd, to see if there is a way to cap the HELOC at the current value, where there is no way to get any more $$ from them. Otherwise, you might need to refinance the 2nd out, and make it a standard mortgage, and not a HELOC.

You could buy it using a LC, but that is CRAZY! (My opinion.) You don;t have control of the house... I always take control of title when I work the deals. If the homeowner is willing to sign everything over, do it now. I would ONLY use a LC if the homeowner wouldn't give me title, and the deal was really good, for me to be interested in it. I guess it is really your decision on that point... Call me a control freak.

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Michael Suess
Synergy Properties, LLC
Edited by Synergy Properties on Oct 30, 2007 at 04:40 AM

Michael
You're right about refinancing the HELOC. Allthough I'd have the seller refy and then take subject2.

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John Thurman

Michael
You're right about refinancing the HELOC. Allthough I'd have the seller refy and then take subject2.

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John Thurman

That is always good... I love when the homeowner has the credit to refi the notes, to a lower payment, to increase MY cash flow, when I take over Subj2... I have done that three times... Made some good $$ that way.

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Michael Suess
Synergy Properties, LLC