Subject-to property purchase

[Eric Anderson]

Hello all! 

It's a long read and I appreciate your feedback.

I'm looking at doing a subject-to transaction, me, as the buyer.  I've got a verbal agreement for these terms: purchase property for $230,000, 0% down, 20 year amortization, record title, long term escrow and buyer pays all closing costs.  I've reached out to an attorney to write the contract.  My attorney is a younger guy and I don't think he has ever written a subject-to contract and doesn't understand the transaction process.  Although he is right on a few items, I think he is wrong on multiple.  First, he said I won't receive title, I did not ask to receive a title, I asked for recording of title.  Second, he talks about the lender changing their mailing address and me not being notified about that causing missed/late payments.  That would be covered under long term escrow.  In the contract I will have a due on sale clause that will require a signature outlining the risk for the seller.   The contract would also have a clause in there about the process for the foreclosure process (following state laws) if payments are missed.   

Here is his response in an email conversation:

So, as long as the mortgage is on the property, you won't be receiving the title, and if you aren't receiving the title you'll basically be renting to own. The problem with this is if you miss a payment, statute supports evicting you within 3 days (as if you were just an ordinary tenant). Taking subject to their mortgage is very high risk.
Since you are currently living there and plan to continue, another risk is that because you won't be receiving title, the property is technically not owner occupied, and that is something that potentially risks the mortgage being called.
There's also a risk that the lender could change their payment address but only sends notice to the legal owner and not you. In that case the mortgage could be called, you'd be in breach of contract, you could lose the property, the sellers could lose it in foreclosure, and then everyone loses out.
This deal isn't actually seller financed, it's an assumption of mortgage, and because of that we recommend getting financing to clear the mortgage first otherwise you risk some of the things happening that I mentioned above.
That being said, if you'd still like to move forward, we are going to need a complete copy of their entire mortgage loan agreement and review thoroughly to make sure we are drafting around those risks.
Let me know your thoughts and if you have any questions or concerns.


Thank you again, I your input is much appreciated!

Eric