Buying Pre-Foreclosures Using Subject To

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I made my first million buying pre-foreclosures using Subto. Yes, it can be done, yes it is a bit risky. Yes, you need money.

There is going to be a flood of foreclosures coming, "eventually". I've heard a couple of commentators talk about rentals in CA & NY & IL that have not paid in 4 years. The owners (landlords) have run out of money to make the mortgage payments and of course, that creates a problem for the owner. Then there are the "covid holdovers" who haven't been making their payments either. And they are everywhere from AZ to NV to FL and so on.

So, here's what to know:

With Subject To, you have to bring the loan “current”, out of pre-foreclosure to do a Subto.

If the payment is $2,000 a month and 12 missed months it's $24,000 plus late fees & legal fees called “arrears” 

You have to pay, up front, the "arrears" (reinstatement amount) plus legal fees to first get it out of foreclosure.

Once the loan has been “cured”, you have to wait a month or two for the lender to send the loan back into the regular pool of loans. If you transfer ownership during this time, the lender will notice and probably call the loan due. You lose your money.

You are making mortgage payments during this time before you own the property. You have additional costs of money to the seller so they can move, you have closing costs, and mortgage payments, property taxes, insurance and utilities plus any rehab.

In a Subject To deal, there is always the possibility of a Due on Sale call.

Since it is in preforeclosure you need to know when the sale date is and if the lender will accept the reinstatement. Have the seller contact the lender for a reinstatement amount. The reinstatement has to be paid before you can buy the property.

Once a lender has a property in pre-foreclosure, they monitor the property more closely, which leads to a higher probability of a DOS call. You also need to know who the lender is. Different lenders have different policies and it takes experience to know which ones will do certain things and in what time frames.

Some states like OR & WA legally punish investors for going after foreclosures. Know what the laws are for the states you chase foreclosures. Familiarize yourself with Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 the Consumer Financial Protection Bureau (CFPB).  They have lawyers who will educate you at your expense. (You don't want that!)

DO NOT RELY ON THE LATEST HYPE ABOUT HOW EASY AND LUCRATIVE CHASING PRE-FORECLOSURES IS - GET PROPERLY TRAINED. If the person training you doesn’t bring these up and how to deal with them, run, run, run away