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Updated over 1 year ago on . Most recent reply

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Christina Smith
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Can someone please provide the breakdown of SUBJECT TO after it's been transferred?

Christina Smith
Posted

It seems like every YouTube video, Podcast episode, Facebook group teaches about first part of "subject to", but I'm left with so many questions. I'm not understanding the "after transactions" of subject to. 

You take over the seller's mortgage. The debt is in the seller's name, but the house is in the investor's name. What's the exit strategy on the investor's part? What part do you actually own the property as an investor? Does the investor gain equity in their name? Or does the seller still gain equity from the investor's payments?  What happens to the seller's loans if the house sells from the investor? 

There are so many missing pieces I can't get my head wrapped around that these gurus don't explain. I would appreciate it if someone could give me the breakdown once the subject to process is a complete success and the investor has gained financials on this portion.

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Doug Smith
  • Lender
  • Tampa, FL
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Doug Smith
  • Lender
  • Tampa, FL
Replied

Let me approach this from the lender's perspective. The holes in sub to financing tend to come about in the part after the transfer. Every year, the lender's escrow department is going to pull the new tax bill and reach out to the insurance company to get an updated declarations page and to ensure that all taxes and insurances are paid. Several things pop up here. First, that's usually when they figure out that the property has transfered without them being notified. Contrary to what the courses teach, this ticks lenders off (I've been a lender for 32 years...I know). It violates the due-on-sale provisions and the lender can call the loan. Will they? Usually not...at least right away. They have to figure out how they are going to handle it. They underwrote the loan to the former owner...not the investor. When you knowingly hide the fact that you're breaking a loan covenant from a lender to induce them to keep taking payments on a lower interest rate loan...that's techinically mortgage fraud. You're hiding/omitting material information from them. They likely won't go after you for it. They simply want to figure out how to extricate themselves from the situation. Here's another pitfall. If they get a cancellation notice of the old insurance policy in the former person's name and they can't show insurance on the property in that person's name, they are going to force-place insurance with a very, very expensive forced-placed policy. That pushes the payments up. You're right, there are a lot of missing pieces. It's certainly a gamble...one that I've never seen gurus share with their students. I'm not a fan of subject to. It's not a new concept...it's been around since long before my professional career and it will keep being a topic of paid courses going forward. Whether you partake in it or not, well, that's up to you. I wish you well in your investing career. 

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