Subject to???

Question

Hello all and thanks in advance for your help!!!

I have a possible deal that I am working on. I have never done a subject to deal and have a couple of questions because I may be interested in doing a form of a subject to on this deal.

I want to offer the seller cash upfront, and take over his payments. I am assuming that this is "subject to."

Then I will fix and try to resell. We would pay the payments until we sold the house. Once the house sold we would obviously pay off the lien in his name of the house. It would need to be paid off at closing obviously.

Can this happen? Are there any flaws to this? If this is possible what is needed? Any advice would be great.

I am obviously wanting to do it this way as to not have to go through and pay the extra finance charges on the deal if the seller is willing to do it this way.

If he wont accept this, or it's just not able to happen, I will obviously just offer an amount and finance it.

Renee Allen · Answer

As an appraiser, I dont see many subject to's with finance companies. From my understanding it is hard to get them to go for subject to. I would make sure your finance company is completely aware of the situation and what you are wanting to do. Also make a list for the appraiser of all the things you are going to do. It is easier for them to "see the big picture" when they are doing the inspection. Good luck.

Anthony Sulecki · Answer

In delaware, transfer taxes are very high. Among the top 3 in the nation, actually. On top of that, there are no exemptions from those taxes. Unless you are either family, or a non-profit organization, you better open your wallet.. On top of THAT, you have to give a real appraised value of the property, on an affidavit, that they tax you on. (no cheating on the value. :wink: )

It costs me over $4500.00 to record a deed on an average 150K home, if not exempt. (which in 99% of the sub2 cases, you wont be.) Its split between the grantor, and grantee, but in the case of you paying nothing for the deed, why would the grantor split it with you? They won't.

You can still make money in the cases of alot of equity, but so much for, "buying houses with no money down." :lol: The selling side has alot to do with it too. If you sell right, you can make it up.

The point is, check your transfer taxes, and exemptions from them, before recording a deed on your own. Some states have absolutely none, and some are so small (Colorado .01%) they don't even show up on the radar.

(I should add that there are a total of 22 exemptions from transfer taxes in Delaware, but the average investor taking a deed, does not fall under any of them.)

Omar Johnson · Answer

Yep, that is a typical "subject to", make sure you check the title

Account Closed · Answer

The mortgage is a lien on the property securing the note owned by the lender.

The deed is the title to the property.

Think of it this way. I can own a property, have a mortgage on the property and still sign a lease to rent the place to a tenant.

The transactions are not mutually exclusive. A property is a bundle of rights and you can separate the rights.

A warranty deed or similar document can be used to transfer title. The buyer is buying the property in its existing condition with the existing finance still in place.

The seller will have issues if they have an outstanding mortgage from the sale plus they want another. Some will have the income to have both.

In some ways they can show that you are paying on the existing mortgage though they can not claim it as income.

Subject-to is not the best for someone who really needs to cash out. For those who are more concerned about avoiding foreclosure they will settle for a subject-to deal vs. having a foreclosure on their record. Not as good to them as a cash out but...

Ray Keziah · Answer

Thanks for clearing that up John.

So in essence all you need to do is:

Make a purchase agreement with the seller.

We both go to the title company and file a deed to transfer title subject to existing financing.

And just keep making payments to the mortgage company.

Is this the basic idea or is there more?

Ray Keziah

Ray Keziah · Answer

I am also wanting to find out how Sub-to's work.

How can you have a deed when the seller is still paying a mortgage?

What documents are involved?

Also, what if the seller wants to get another mortgage, how can they get around having two mortgages in their name or qualifying for another loan?

Thanks for your help.

Ray Keziah

Jason Cummins · Answer

I most likely would not need financing on the house at all. The point would be to just pay the sellers payments and use his credit while we fix it up, and then sell it.

Jon Holdman · Answer

Which finance company do you mean? The one that holds the seller's note? Or, the one financing your end buyer?

As long as you're on title for a sufficient period, the lender for your end buyer shouldn't care about the subject-to aspect of the deal. If its a fix-and-flip, there's always a possibility you'll own it too short of a time to meet their seasoning criteria.

As far as the seller's lender, the subject-to deal does violate the due on sale clause. But, there would be no approval or appraiser involved in purchasing the property. Loans are no longer assumable, so the original lender isn't going to be involved. Could they call the loan due? Yes. Will they? At the moment, it seems unlikely. They have other fish to fry. If you want to be totally up front, send them a letter saying what you're up to. If they don't object, it must be OK (right?)

In the deal like Jason describes, he plans to sell the house fairly quickly. even if they call the loan, and start a foreclosure, he can fix and sell the house before it will all come to a head.

Jon

Jon Holdman · Answer

Yep, that's a subject to deal. You understand the concepts. Get a deed and do a normal closing, just with the exception that you're getting the property "subject to" its existing financing. Jon

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