How to Deal with Creative Lending and the Lenders Behind It

When it comes to creative lending, you are likely most familiar with the “conventional” forms of non-conventional real estate investing: the subject-to deal, the lease-option deal and owner financing. Many of the “gurus” promote these types of real estate deals as a way to get around traditional financing issues like bad credit, no credit, no cash for a down payment and the “need for speed” in order to save a property from foreclosure. All of these types of deals can be done to good effect and can benefit all parties involved in the real estate transaction. Furthermore, they are relatively easy to understand and can be explained fairly easily to a motivated seller or buying partner.
However, while these strategies are fairly common on the real estate investing stage at this point, actually dealing with the “lenders” is not nearly so simple an issue. While you can do these transactions without dealing much with your future relationship with the lender, you will better protect yourself and any other parties involved if you understand some of the pitfalls that can arise during creative financing transactions.
One of the biggest issues that I have noticed colleagues and beginning  real estate investors  encounter is with subject-to transactions. When you do a subject-to transaction, the common perception is that the responsibility for the transaction is still entirely the original homeowner’s. Now, this can be done, and it is how you should structure your subject-to deals. That way, if everything just blows up in your face then you can simply walk away (of course, it is dishonest and irresponsible to ever deliberately plan on doing this when you set up this type of transaction, but you do need to protect yourself – especially if you sell the property again later on down the road and that person does not keep up their end of the bargain). However, many people do not realize that in a subject-to deal, they can actually be held partially responsible for the debt on the house by the homeowner, the lender or both if the deal is structured incorrectly even though the mortgage is not in their name.
Another common issue is with owner-financing. Owner-financing is when the owner of the house basically takes out a note on the house for the buyer. The owner retains the deed to the house as collateral until the new loan is paid off. This is a great way to get around problems with the current “credit crunch” and also for people who want a higher price in a poor market to get that price since buyers will often pay more money if they cannot get a traditional loan. However, many owners do not realize the many complications that go into owning a note, and they may just want to get their money out at some point. When this happens, if the loan is not worded correctly then the new note-holder may be able to take aggressive steps to try and force the buyer into foreclosure. Conversely, a poorly worded note can also enable a delinquent buyer to fight eviction and foreclosure for months or even years without paying a dime to the note holder.
Author info
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.