Please define SUB2

[Donna S.]

Obviously I am new. I keep seeing "SUB2" or "Subject to" referenced in forum post and cannot figure out what your talking about. I've looked around alot. Please help. Thanks, Donna

[Jon Holdman]

Its just a guess. When you do a sub 2 deal, you give the lender a choice. They can continue to accept the payments or they can call the loan. Calling the loan, for all practical purposes, means foreclosing. At the moment, the groups of people who would do the foreclosures are up to their ears in work. Further, if you called an existing loan, and managed to get a new loan in place on that property, its likely the rate on the new loan would be similar to the rate on the old loan.

Note that it doesn't really matter if that same lender gets the new loan or some other bank does. If all banks are consistently calling such loans, there will be plenty of new loans to go around.

Now, consider what things might be like a few years from now. Inflation and interest rates have kicked up. When I bought my first house in Texas in 1987 I had a 9% owner carried note, and was happy with the deal. Three years before that interest rates for OO SFRs were 16%. IMHO, such rates are not out of the question a few years from now. I also think its possible we fall into a deflationary environment and rates fall, which makes this whole argument moot.

So, if rates are at 10% for a OO SFR loan, and the banks have cleared their backlog of non-performing loans, what might they do? Don't fool yourself, the banks know these deals are happening. Trusts and other tricks to hide ownership are just that - tricks. If the banks look across the landscape and say "here's xx billions of dollars out at 6% when we could have this out at 10%", they may well choose to start doing something about that.