Subject To?

Question

Hey Everyone,

I am very new to all of this and I had never heard of a subject to aka sub-to before.  I really do not understand it at all!!  If someone could simply tell me how it works, what it accomplishes, etc. I would really appreciate it!  :D  What are the best books for subject to??

Thanks for everyone's help

Jennifer Butler · Answer

From what I understand, most, if not all mortgages have a 'due on sale clause', meaning, if the house is sold, the lender can demand full payment on the mortgage....although they don't enforce this if they are receiving regular payments.  An investor I met recently has about 20 homes that he has done 'subject to'...the loans aren't in his name on these homes.  He notifies the lender to put a c/o in his LLC name and address so he receives the monthly invoices and pays them.  I don't have any personal experience with 'subject to's' but this seems to be working for him. Some loans he walks right into the bank and pays the payment with a teller.  They've never questioned him even though he will make 3 different payments on 3 different loans at the same time.  This sounds a little risky to me, as I'm just learning about 'subject to's also so any advice is welcome!

Matt DuSold · Answer

"Subject-to" means you are buying the house SUBJECT-TO the existing loan.  I struggled with this concept for a while.  So don't over think it. (I did) To keep it simple.  You find a motivated seller, reach an agreement to "sub-to".  Change the deed of the house to your name but you keep the loan in the sellers name.  It is YOUR house with THEIR loan.  They do lose all the equity in the house and it becomes yours.  It's great!

A good book and one that is brought up on this site many times is Lease Options and "Subject-to" Deals by Wendy Patton.

Good luck Colin!

Mitch Freed · Answer

I really don't think you can get around a due on sale clause by sending a letter...but its really not something you need to get around as long as you are making the payments on time.

I would be interested to find out that if you buy a property sub 2 and then sell it the next day sub 2...what happens if the person you sold it to stopped making the payments 6 months down the road and foreclosure proceedings started...would the original borrower have any sort of claim against you since they sold you the property originally and you agreed to make the payments on time?  Or are they SOL because you are out of the picture entirely?

Lee Common · Answer

Another way to get around the due on sale clause is to sipmly write a letter with a check stating that cashing the check consumates thier acceptance of your assumption on the loan.  
He stated to me that a couple of lenders told him they did not even read the letter just cashed the check.  They get so many payments and the person opening the envelopes does not get paid to ask questions or read letters from barrowers.

Jeff Luman · Answer

In most cases subject to is just another term for owner financing. They have a mortgage, they will keep the existing financing in place, and you make the payments. This violates the due on sale clause that all mortgages have. The only way I know around the due on sale clause is if the property is placed in an inter vivos trust (title holding, also called an illinois land trust)
            
            " The Illinois land trust is easy to establish and inexpensive to maintain. It is a method of real estate ownership in which a trustee holds legal title to real estate, while the trustâ€™s beneficiary has full power to dispose of the property and complete control over its management"
            
            This allows someone to owner finance a property without fear of the bank calling the full amount due.
            
            I have never seen any data on how many due on sales clauses are invoked, but I just do not like that chance over my head.

Subject too can be great for you if you are buying. Especially if you can get the property with just taking up the payments.

Mitch Freed · Answer

When taking title subject to...is there a specific way to make the monthly mortgage payments or would the investor simply send the previous homeowners lender a check along with the payment coupon?  Does the lender care who the money comes from...or is it best to make payments out of an escrow account?

Jon Holdman · Answer

Because they're desparate. They have a property and they need to not have the property  Maybe they're behind on payments and can't make them up.  Maybe they need to move, and can't afford to fix up the house.  Real estate investing requires getting a good deal.

Even on a subject to, you may need to lay out some cash.  If the loan is in arrears, you may have to make up some late payments and fees.  If its not, and there's a lot of equity and good loan terms, the owners may want some cash out of the deal.

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