What can go wrong with Subject to Investing

[H. Jack Miller]

Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.

[Don Konipol]

Quote from @H. Jack Miller:

Seems a lot can go wrong with this and I wanted to speak with existing investors and see what has gone wrong with this in the past and how have then fixed it.

Hi Jack, hope you’re doing well!
I have a LOT of experience with subject to , dating back to the late 1970s early 1980s.
I’ve spoken about the history of subject to, the St Germain Act, etc., but what’s relevant today is 
1. The seller remains personally liable for the note BUT no longer owns the property
2. Whereas in the past lenders did not attempt to enforce the “due on sale” clause, this was in an era when interest rates were heading lower and transfers of ownership were not easy to identify.  Both of these have changed with interest rates higher than in the last 3 years and technology making it relatively easy to track deed transfers. So we don’t know how lenders will act in the future.
3. The reason for selling subject to rather than cash or cash with new financing from the sellers viewpoint is to sell for a higher price or sell property that can not be financed with new financing.  That being the case how will the buyer react if the note is accelerated and he needs new financing at a higher rate?  Will he “walk” away from a deal where he has little or no equity?  
4. The structure of the transaction is much more important than is generally recognized.  The important points often glossed over are (1) is the buyer providing their personal guarantee to the seller for the note (2) is the seller maintaining a wrap position so they can foreclose in the event of default and gain ownership (3) is the buyer putting up additional collateral (4) how large is the down payment (5) what is the LTV (6) is this a personal residence for the seller or investment property (7) will the property cash flow and if so what will the cash flow be (8) is the property in a increasing, declining, or stabilized area (9) is the property being sold at market value, or above market value because of the low interest rate of the existing mortgage and (10) how experienced and what is the track record of the buyer, and is the buyer purchasing a property for investment or to live in or otherwise use.