Investor · San Francisco, CA · Member since 2022 · 36 posts · 41 votes
As I understand it, subject to financing is a way for the buyer to purchase a property, while the seller remains responsible for the original note. You then pay the seller over time, and then the seller is paying the lender.
This leaves me with some questions:
1) How can you be sure that the seller is actually paying the mortgage? They could just take your money and not pay the mortgage, right?
2) What happens if the seller is unable or unwilling to make payments on the loan? Would the property move into foreclosure, even though it's the buyer that owns the property?
3) How can I keep track of how much remains on the mortgage? Will the seller provide a monthly statement to me?
4) How does the exchange in equity occur? Since this transaction involves 3 entities, it's not clear to me how equity is increasing or decreasing for the buyer and seller over time?
@Account Closed ok, I'll answer your questions below but I need to clarify something here: with "subject to" you will NOT pay the seller. You will pay the lender directly. Under no circumstances whatsoever are you to pay the seller of the property. You need to pay the lender. Always.
1) How can you be sure that the seller is actually paying the mortgage? They could just take your money and not pay the mortgage, right? - Exactly why I led with the above statement. You pay the lender yourself.
2) What happens if the seller is unable or unwilling to make payments on the loan? Would the property move into foreclosure, even though it's the buyer that owns the property? - Same as above.
3) How can I keep track of how much remains on the mortgage? Will the seller provide a monthly statement to me? - No, the lender will provide you with the statements...that is, as long as you have setup your "subject to" transaction correctly. There are steps on how to do this properly. With those steps, you will have rights to the loan information.
4) How does the exchange in equity occur? Since this transaction involves 3 entities, it's not clear to me how equity is increasing or decreasing for the buyer and seller over time? - Hmm, I think I need to clarify this some too. The seller has NOTHING to do with the property from here out. The property is yours. All the appreciation (and depreciation if that occurs) is yours. This is your property. You purchased it.
Hope all of that makes sense but feel free to ask anything additional if you need. Thanks!
Thanks for clarifying Andrew, yes I was getting confused reading different sources of information on the internet.
Another question: Is Subject To, is that the same as an assumable mortgage or is that something else?
They're different things. Assuming requires some strict rules for example someone with FHA as an option can assume a FHA loan from someone else. A VA can assume a VA loan from someone else.