Subject To vs Debt Assumption

[Eric Grunfeld]

Good Morning Everybody,

In this environment (as I am sure everybody has experienced) - it has been challenging in obtaining permanent financing.

I have come across some deals where the debt is not "Assumable" but the seller maybe open to a "Subject To" loan.

My question is if a "Subject To" loan is done - will the "Due On Sale" clause be executed by the lender (bank)?

And what happens if it is executed? Does the buyer have any liability (risk) if this happens? 

Thoughts?

Thank you. 
 
 

[Ned Carey]

@Eric Grunfeld the due on sale clause can be enforced but usually is not as @Taylor Dasch said. However if it is you are at risk of losing any money you put into the property for upgrades, additional acquisition costs etc.  Are you in a position to pay the loan off if the loan is called because of "due on sale"?

Maybe the bigger risk is if things go badly. No matter how fairly you treated the former owner you will be positioned as the bad guy for letting a foreclosure go on their record. Potentially even have legal liabitlity for harm to their credit record. None of this is likely, but it is worth knowing your potential risks.