The servicer confirmed me as successor in interest without calling the loan

The forgotten HELOC is the detail I'm writing down. He forgot an $18,400 lien on his own property. How do you even ask that question in a way that gets a real answer?

Numbers check. Total in: $18,400 cash at closing plus whatever closing costs plus the escrow shortage. Call it $24k. Net $940 a month is $11,280 a year, but you're also paying $500 a month on the seller note out of that, which you've already subtracted, so once the note burns off in month 40 you're at roughly $1,440. That's a 47% cash on cash return on year one money, going to 72%. Which tells me the real story here isn't the rate, it's that he sold you $520k of value for $34k because he was tired. What am I missing?

Can someone explain why the seller agrees to this at all? He stays on the hook for a $412k loan and walks away with $14k. If cairn stops paying, whose problem is it?

@compass it's his problem, entirely. His name, his credit, his liability. That's why the whole strategy rests on the buyer's reliability and why I'd want to see the servicing arrangement before I ever recommended a seller do one of these. @cairn did the reserve get rebuilt after the HELOC ate it?

On the successor in interest step, since a few people will read that as a workaround. It isn't one.

Federal mortgage servicing rules require covered servicers to have a process for confirming someone who has acquired an ownership interest in a property as a successor in interest, and once confirmed that person generally gets the information rights and access to loss mitigation options a borrower would have. What confirmation does not do is release the original borrower from the note or waive the lender's rights under the due-on-sale clause. The seller still owes the debt. The lender still has the contractual ability to accelerate on transfer. Confirmation gives you visibility into escrow, payoff, and delinquency status, which on a deal like @cairn's is worth real money, because an escrow recalculation you find out about three months late has already cost you.

This depends on the loan being one the servicing rules cover and on the servicer's own procedure, both of which you confirm in writing with that servicer rather than assuming from a forum post. Rules and internal policy change.

@ledger you pinned down where the return actually comes from. The 3.75% is worth about $1,100 a month against a current-rate loan of the same balance, which is most of the cash flow, and the $34k price on that equity is the other half. Both came from the same fact, which is a burned-out owner who valued being finished. That is not a repeatable input you can underwrite. The rate gap is repeatable while it lasts. The tired seller is luck, and pricing luck into a model is how people get hurt.

Pull the note out of the loan file and read what it says about transfer, word for word, not what the standard uniform instrument says. Also whether there's a rider. @cairn did you read the actual recorded deed of trust or just the payment history? On a 2020 refinance there's usually a copy at the county and it's worth the $12 to pull it.

Four units of 1974 mechanicals with a manager who quit. What did you find in the first month?

@pike you ask for a payoff statement on every lien and you make title pull the whole chain. You don't ask the seller, you ask the record. Sellers forget second mortgages the way people forget old store credit cards.

8% management on four units in a market with $1,300 rents means someone is doing that work for about $412 a month gross. Whoever took it is either very local or about to quit like the last one. Two evictions in eighteen months usually means the tenant base needs re-screening from scratch, and that costs more than the management fee in vacancy. @cairn how many of the four are original tenants?

The part I find interesting is that the seller's real product was relief, and cairn was the only person offering it. A listing agent would have given him a higher number and four more months of the thing he hated.

$4,400 of your own money on top because of a lien nobody found until title. That's the kind of thing that kills a deal for me on a thin one, and it barely dented this. Big spreads forgive mistakes, thin ones don't. I do fast deals and I've learned that lesson from the wrong side.

So the seller note at 0% for 40 months, is that actually a note secured by the property or just a promise to pay? Trying to understand where it sits if things go wrong.

@vellum that's the question I had too. If it's secured, cairn has put a lien on his own property in favor of the seller, which changes the Plan B refinance math. @cairn worth spelling out. And I'd still want to know what the reserve looks like today, because everything in this post works until it doesn't and the answer is always months of payments in the bank.

I went back over this a second time. What sticks with me is that you priced the Plan B refinance before signing and it still covered at 7.4%. That's the test I'd want to pass before I ever touched one of these, and it means most of the deals I've looked at wouldn't qualify.