Constructing Subject-To Deal

[O'Neil Mbakwe]

So I have an individual who is looking to sell their home. They recently bought a home two years ago and are now looking to sell. Unfortunately, they haven't built enough equity in the home to come out net positive. In fact, since the home hasn't appreciated much in value, if they were to do a traditional closing, they'd most likely have to cut a check to title. That's not feasible because they need the money. 

My first thought was the give the seller a down payment, and purchase the home subject to the existing financing. However, the seller isn't comfortable with having their name still on the mortgage. They want to be done with the home for good. How can I construct the deal to where I purchase the home subject-to the existing financing, and also change the mortgage and put it in my name?

Thanks. 

[Jay Hinrichs]

Originally posted by @O'Neil Mbakwe:

 @Jay Hinrichs @Ed Emmons Thank you both for your replies. Jay to your point, I'm interested in the property because there is an appreciation in the area. 

What are the risks of taking over the payments on a property with little to no equity if my name is on the deed?

Thanks. 

Basic risk is this.. you have no real equity and actually you have negative equity since you would have to write  a check to sell.

you put a tenant in they don't pay they squat they do 10k in damage.. now your really negative.. and for sure we know your not going to just walk and leave the seller hanging in a bad place right ??  so its out of your pocket and you will probably have to have a good 10 year run to recoup.. I have seen others drink this cool aid and end up in a heap of trouble.. try having about 30 of them like this and 9 stop paying.. that happened to one group.

Also Texas is regulators are really starting to focus in on disclosure docs etc for these sub to wraps.. because of the risks  

Now on the flip side if have 100k in cash in the bank and you have a 20k problem and can just cut a check then the risk is mitigated.

but if you going into this and your cash is limited and a 10k problem becomes some thing you cant handle then you cause major issue for the person who sold you the house since the loan is in their name and maybe you cant make the payments because your not getting rent.. and you just decide to walk. this is the bad part of these deals.

so really depends on your liquidity and financial capacity.  its not a scheme to use like Hey I have no real money so I am going to try to take title sub to on properties with no equity and hope the rents cover and maybe I make 200 a month.. 

So that's just point  counter point for your to think about.  the group I was talking about I rescued them they had been turned into the AGs office and were facing some serious charges.