You really need to consult an attorney. That said, the existing note will have rules concerning your ability to take it over. You may not be able to in that it will propbably have a "due on sale" clause in it. Even if it does the lender may allow you to "assume" it which is different than taking it "subject to". The existing lender may require you personally guarantee the note regardless if you form an LLC. You would probably have to guarantee all of the note regardless of you percentage interest in the LLC you form? If the note has a due on sale clause in it (which it no doubt does), and you simply take it "subject to", with owner financing, the lender could exercise the due on sale provision and call the note due. While the seller is not off the hook on the original loan the seller now has your money with a forclosing lender. I did many deals like this in the early 80's with AITD's, "wraps", subject to, etc. Lending rules changed however and your ability to do these today are very limited. As I mentioned at the outset you should consult an attorney. There are many issues you need to be concerned about if you go forward such as: If you take it "subject to" do you use and AITD. If you use and AITD how does the first get paid-through the seller or you direct? If you pay direct, how do you not tip your hand to the lender a transfer has been made? If you pay through the seller how do you know the seller actually sends the money you've given him to the lender? How do you hide the transfer from the lender when a new insurance policy will be needed and the lender will need to be named on the policy? The seller can't continue insurance because the seller no longer has any ownership.
In all likelyhood your best bet is to actually assume the loan if the existing lender will allow the loan to be assumed? The seller may be off the hook at that point which is good for him. The seller's carryback will not be nearly as risky for you and you will be paying the lender direct. firstname.lastname@example.org or 800 554-7362 ext. 208
Paul Sylvester, CCIM
Jun 5, 2009