With a subject to real estate purchase should you pay the seller’s bank mortgage directly?

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Good question.

You should never hand money to the seller and blindly trust they will pay their own mortgage on their loan. You will have lots of unpleasant surprises over the years where the house goes into foreclosure if you don’t pay the seller’s mortgage directly.

If you make the monthly payment to the seller and blindly trust the seller to pay the mortgage, they will be tempted to not pay the mortgage if they have a shortage of cash.

The best way is to have their bank information and a power of attorney from the seller allowing you to do everything with their house and bank mortgage. The seller also should sign an authorization to release information so you can talk to the seller’s bank directly. This must all be done before the deal closes and you give the seller any move out money. If you don’t do this first after the deal closes, the seller will often decide that now that they don’t have the same problem, they won’t cooperate as previously agreed.

If you make the new investor mistake of paying the seller and assuming the seller will obviously follow through and pay the mortgage you will sometimes have an unpleasant surprise. It also is not possible to predict which sellers will keep your mortgage payment and not forward it on to their bank.

You can avoid all these problems if you just tell the seller that as part of the deal you must pay their bank directly. Let them know you won’t do the deal or catch up their back mortgage payment(s) if they won’t let you pay the mortgage directly or sign your power of attorney documents and an authorization to release.

Next, have your attorney put together all the legal documents. Don’t ever sign any documents if the seller’s attorney has prepared any. If the seller tries to take control of the deal, just tell the seller that now that his lawyer is involved you don’t want to be involved. Then go find another seller to work with that won’t try and take control of your deal.

A good starting point would be to get more education. If you would like to learn more about investing and other related topics, just go to www.benjaminzmiller.com If you would like to meet more investors and lenders, you also can go to the free Sunday weekly meeting held on Zoom for Benjamin Z Miller’s Investor Networking Group.

https://www.meetup.com/benjamin-z-millers-investor-networking-group/

I hope that helps and good luck with your investing!

Benjamin Z Miller
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1-817-203-4160
ben@benjaminzmiller.com

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