A couple "Subject-To" questions

Lansing, MI · Member since 2015 · 11 posts · 3 votes

I've been reading up on Subject-To sales and they sound good on the surface, but I have a couple questions:

1. If I buy someone's house and take over their mortgage payments, they have to move somewhere else, but the mortgage debt is still in their name, so the chances of them qualifying for a new home loan are really low. So what do they do? Rent?

2. How do you go about getting home insurance on a Subject-To property?

3. If the Title is transferred into my name after closing, the bank on record isn't notified of the Title transfer?

Thanks for your help on these questions.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
4y
Quote from @Mark Williams:

I've been reading up on Subject-To sales and they sound good on the surface, but I have a couple questions:
1. If I buy someone's house and take over their mortgage payments, they have to move somewhere else, but the mortgage debt is still in their name, so the chances of them qualifying for a new home loan are really low. So what do they do? Rent?
2. How do you go about getting home insurance on a Subject-To property?
3. If the Title is transferred into my name after closing, the bank on record isn't notified of the Title transfer?
Thanks for your help on these questions.
You’ve identified three “challenges” with the “subject to” transaction

1. Some lenders will take into account the mortgage being paid by the buyer as something like income, to offset the mortgage payment. However, those lenders usually allow a 75% offset, so qualifying becomes more difficult.
2. You as the buyer have title to the property, so you have an incurable interest. Getting insurance is not a problem
3. There’s is no one to “notify” the bank, per se. However, the mortgage servicer may subscribe to a service which scans title transfers and when they find a “match” to one they’re paid to monitor alert the note holder. Few note holders do this.

with interest rates going up, lenders holding notes with lower interest rates will become more aggressive in enforcing due on sale clauses. We may see more contract for deed transactions while keeping existing mortgage in place. While this violates the due on sale clause similarly to a subject to transaction, it’s much harder to spot.
Private Mortgage Financing Partners, LLC
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