Have no idea why everything I was typing was highlighted with the @.... You certainly don't start with a trust. Absolutely never use a gift or quit claim deed, this is a sale transaction. All you need is a contract stating that the seller is selling the subject property subject to the existing underlying mortgage by Special Warranty Deed. Give the contract to your closing company, they know what to do, ask for a title search and insurance. That is assuming there is no additional equity involved. You will need a "wrap" financing agreement, there are other ways, but an agreement to pay the existing mortgage as required needs to be done by an attorney. You want the seller to warrant good title and except out the mortgage, that's where this gets its name, buying subject to the mortgage, but all other aspects are done as a straight sale. :)

Welcome Troy, no, the buying investor doesn't "pay" the RE commission, the seller does as the seller has a listing agreement unless the investor has a buyer's agreement with his Realtor. Now, that may well mean that the investor has to come up with cash to pay on the deal giving the seller enough to pay his expenses. The really bad thing about forums is that I have clowns to the left of me and jokers to the right, and here I am having to post, spending time and effort correcting them so that the unknowing don't get in trouble or get their heads screwed up. No, you can not just do a quit claim deed and cure the fact that title was passed in violation of the deed of trust.

great strategy. Prob the most powerful and my fav.... 1. Get seller to deed the house to you or into a trust. There are several docs ur gonna need including a power of attorney. Next, im presuming u know the condition of the house, do ur title search to make sure u know what else is on the house/SELLER. u can then get ur title co. Or attorney to close it for u. Sometimes a gift deed can be used depending on your state. But get professional help if this is ur first one. U can really get into a jam down the line if u dont properly disclose. Good luck...

There's nothing at all complex in doing one of these transactions. You simply buy the house just as you would if you were paying cash or getting a loan. Part of the transaction is to take the property subject to the existing loan. The deed you receive and the title insurance policy will list that loan as an exception. Not all title companies will do these transactions. Forming trusts and other monkey business doesn't change what's happened. At best, it hides it from the lender. Be prepared to refinance or pay off the loan if it gets called. Hope you never have an insurance claim. My recent experience with an insurance claim makes me wonder how anyone in a subject to deal ever gets an insurance check cashed.

@K.M. Johnson Try this: http://www.nreinsurance.com/docs/Insurance-Issues-for-the-Sub2-Deal.pdf

As for the insurance, I wrote a piece a few years ago here: http://www.nreinsurance.com/wp-content/themes/migration-www.nreinsurance.com/misc/Insurance-Issues-for-the-Sub2-Deal.pdf My opinion only, but has been successful for us for years. I think it's saved on BP as an article, too... Happy New Year!

You'll always negotiate the down payment and much of that will depend on the seller's motivation. There is no stated amount that must be paid, but where does the seller's money come from to go to closing? As Jon mentioned above, you need to be able to refinance in the event the note is called and lenders do call them due. That means you either make a down payment sufficient for the equity required to refinance or you need cash to make up that difference. There are several issues with asking another investor what they do or have done: 1. You aren't them, their credit, assets and skill set is usually not the same as in your position. 2. Are you in a different market, this effects the circumstances of their operations. 3. Seller's needs, motivation and expectations are never the same, sellers will need to feel secure in dealing with you with trust being developed (goes back to your skill set). 4. Most often what someone does cannot be replicated especially in areas that are to be negotiated, So these variables must be considered when asking others about what is common for them. I can say that putting 10% down is most common with seller financed transactions often more then sometimes less. I've done many 100% financed deals but that is always due to circumstances that are unique to that seller. I've also been in a position to payoff any 100% financed deal and being highly leveraged is not for the beginner that may rely on luck with cash flow. Sub-to deals should be short term positions, like a fix and flip, you can get it done before a lender can even move on their note. Long term deals can be dangerous, individuals or under funded entities are subject to life events that don't impact larger institutions or entities. Life events are death, incapacitation, incarceration, personal bankruptcy, divorce and civil suits. Not to mention acts of God, uinsured hazards or events and limited insurance coverage. Murphy's Law is alive and well in real estate! :)

@Amy A. Yes, that can be tricky, if the owner moves out and they do an installment contract they should ask about a landlord's policy. The owner is on the hook to the buyer under their agreement, so the owner must be active in any claim process as the owner. This can sometimes be assigned by a durable power of attorney for the buyer to act for the owner, you know, the owner is out of town and I'm the resident. Now, in a fix and flip, a landlords policy can cover small jobs, probably not materials or tools left there, but liability for the electrician getting bit my your poodle. Larger rehab deals may not be covered, you need to look at a builder's risk policy. An old rule of thumb, if any specialized policy exists for a certain risk, then only that type of policy will afford full protection of that risk. If your car is in the garage and the house burns down, the homeowner's doesn't pay for your car under contents coverage, you need a comprehensive auto policy. So, you need to be aware of the different types of policies available and how they are used. Homeowner's, Landlords, Builder's Risk, Renter's Policies, Blanket Liability Policies, a bit about Auto Policies because trees fall on someone's car, Professional Liability if you're consulting, Lender's Liability if you're lending (and if you're not consulting or lending, understanding these helps protect you as a consumer, knowing you're covered if they really screw up). That's why it's best to consult with a good agent, they want to write policies but they need to know your plan, purpose and strategy to ensure you're properly covered. There are some tricks to the game, additional insured, lien holder coverage, loss payee and power of attorney. Good luck :)

Thank you @Andy @Andy Hudginsundefined LOL, which day or week? I may, but don't hold your breath, but you did give me an idea for a blog on my site, thanks again. I just lost a long post explaining how to use a loss payee in your contract rather than changing policies, it helps avoid the due on sale issues as a lien holder. The lien provides an insurable interest upon any insurable loss. I'll cover this later but you can mention it to your attorney who may catch on. :)

@Jon Holdman mentioned difficulty with a subject 2 and an insurance claim. The 1st rule with insurance is that you must have an insurable interest in the item or property that you are insuring. That means you are the owner of the item / property or you have some contractual interest or responsibility in that item / property. If you do a subject 2, as the buyer, you will be recorded to title as the owner of record. With that, you now have an insurable interest and therefore the policy can be in that person or entities name. As far as a claim, there should be no issues if you can prove you are the owner because your on title or have a contractual interest in the property and therefore an insurable interest. My company even has an endorsement that can be added to home policies or landlord policies that just states the property was bought via contract. It's really just an identifier that alerts the parties involved that this property was bought via a contract. Even if you didn't put this on the policy and there was a claim, so long as there was an insurable interest, there will be no issues. The agent should know up front or be asking if the property was bought on contract, just as they would ask if you have a lienholder and list them on the policy as a mortgagee. Your contract should also have a section in it that deals with the insurance and what should take place in the event of a partial or total loss / claim.

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Updated about 6 years ago on 02/27/2019. Most recent reply

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Justin TurnerPoster

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Texarkana, TX

Creative Real Estate Financing

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Justin TurnerPoster

Investor
Texarkana, TX

Posted December 28, 2013 05:15

Can someone try to list in steps how the subject to takes place? I'm having trouble getting financing, but I explained the concept of subject to the seller and he is willing to do sub to. Thanks for your help everyone.

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