Uptick in Subject to mortgages? What are the key considerations?

Question

With current interest rates, are people generally seeing an increase in subject to arrangements (even if just anecdotally)? What are some key considerations when buying using subject to and what should be avoided or included?

I've talked to friends who have used this strategy, but it often sounds sketchy. I've heard of a few who even log in to the seller's mortgage account to pay the mortgage and never notify the financial institution.

Shiela R. · Answer

Hi @Joe Norman.  Equity is usually scarce with subject to as already mentioned.  If there is equity, it is probably not a sub to deal.  But could be a L/O. IE A seller who has to move closer to her aging parents but doesn't need her equity in the very new home she just bought.  That's more a L/O strategy.

And if there is little equity, you may not want the deed.  There is still due diligence that must be done. And disclosure, clear communication, ethics, etc. as in every deal (obviously;).  However, when a seller is financially distressed you want the seller off the deed.

You have to be able to determine if the seller has good or bad debt. Your main concern is that a seller with financial issues will continue to have financial woes that could affect the title to the property if the deed is still in their name. IE if a seller gets judgments from creditors they can be attached to the real property they own - the same house with a mortgage you are responsible for.  But if the market is declining or at the bottom and the home is in a decent area? That's when sub to makes sense.  I've had people pay me to take the deed.  This strategy was seen much more when I began investing in the early 2000s.

Hope that helps!

Jay Hinrichs · Answer

sub too are generally very low down limited equity transactions so not much risk to the buyer .. as they have very little into these.

the Risk is to the seller.

1. they remain on the loan hurts them trying to get another loan if payments are not made it buggers up their credit something fierce.

2. seller transfers title and buyer does not make payments and keeps rent.

3. bank decides to call the loan.. both buyer and seller have no means to cure the loan.

Account Closed · Answer

I've used Subject To for over 25 years. The market is currently changing to where it will become more useful again. In a hot market like we've had, most people get multiple offers when they put their house on the market so they don't respond to Subject To solutions. Simply no need to.Look for a market or for a time, (like now) when houses are going down in value, or houses are staying on the market 90 days or longer, or for people who were on the market but the property didn't sell. That's one group that will respond to Subject To.  But, you still need money, you still need to disclose what's happening, you need a closing agent that understands, etc, etc, etc.

There is a right way to doing Subject To and a lot of wrong ways. Here is a list of some of the things to avoid https://www.biggerpockets.com/...

Jay Hinrichs · Answer

when I personally did sub too back before sub too and rent back to the person who was losing the house became illegal in Oregon and Washington I would not pull the trigger on anything that did not meet my equity requirments..  I could have bought 100s of houses with zero equity but that was not my goal at the time I wanted equity so when the renter leaseback failed and they all do.. that i could sell and make money not just have a zero equity and forced into landlording.

Joe Norman · Answer

Or, put another way, the home has to have minimal equity for sub-to to make sense - is that accurate?

Joe Norman · Answer

I was under the impression that the Assumer still had to pay the difference between the purchase price and the loan principal to the Seller (i.e., sometimes a large downpayment). Can you elaborate on how one does a Subject-To deal without any money down? (I've never done a subject-to deal and am by no means an expert - just looking to learn!)

Joe S. · Answer

Too many new and unstable muddying the water here..

Shiela R. · Answer

Hi @Griffin Brand :)  So much to say but basically, this can work for both parties.  It's an excellent way to buy with no money down.  And can help a seller, depending on the situation too. IE, they need to have their payment taken over to buy/rent somewhere else due to divorce/job transfer, etc. but there is little equity for a retail sale since they just bought 10 months ago.

Of course, contact a real estate attorney but I was taught, in addition to the buy and sell contract, to get a signed and notarized authorization to release loan info from the seller.  A POA would work too.  You are taking over (agreeing to pay) the seller's existing mortgage.  You also want to be added as additionally insured.

Hope that helps!  There is much more to it like how to talk to a seller and pitch subto. It's not something you lead with;) Feel free to DM me.

Uptick in Subject to mortgages? What are the key considerations?

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