How to takeover Subject to loan

[Godsheritage Adeoye]

Hello, I’d like to know how investors typically handle Subject To contracts. Do they use a servicing company to make the payments directly to the , or do they make payments directly to the seller and hope they pass them on to the lender?

[Ken M.]

Quote from @Don Konipol:

Quote from @Godsheritage Adeoye:

Hello, I’d like to know how investors typically handle Subject To contracts. Do they use a servicing company to make the payments directly to the , or do they make payments directly to the seller and hope they pass them on to the lender?

There are actually THREE kinds of subject to transactions
1- subject to existing mortgage without lender approval
2- subject to existing mortgage WITH lender approval
3- subject to existing mortgage as part of a seller financed wrap around mortgage.

with #1 and #3 it’s in everyone’s interest to utilize a third party servicer, who collects and then distributes payments.  In the “old” days, people would have the seller pay the lender so as to not “alert” the lender that a property sale had taken place, so that the lender def wouldn’t trigger the so called “due on sale” that’s a part of almost every mortgage or deed of trust document.  With online access to almost every jurisdictions property recordings, lenders today use software that automatically searches property transfers for transfers involving their loans.  Whether the lender decides to do anything, and exactly what they decide to do depends on the lenders particular strategy, target ROI, risk tolerance, current interest rates, interest rate of subject mortgage loan, etc. 
My experience has been that most lenders don’t immediately move on this, many don’t take action for 6 - 12 months.  An investor who has participated in a subject to transaction without lender approval should NOT assume that they are safe from note being accelerated because a certain amount of time has passed.  Often, lenders will not act until the differential between current interest rates and the interest rate on the subject loan reaches a certain point.  So the lower the interest rate on the subject to loan, and the higher the prevailing rate, the more chance that a lender will initiate action.  

I agree with @Don. There are a couple of things that come to mind, 

if a payment is missed the lender cares, if the servicer goes out of business or misses a substitution of trustee, the lender cares, if the borrower goes to the lender to try to get removed from the loan (usually to buy another house) the lender cares, if the property gets caught up in a bankruptcy or divorce, the court cares and that means the lender gets involved. Life is not static for most people. 

If the transaction has "hair", the feds care and financial crimes can be prosecuted for up to 10 years after the transaction. 

Don't get me wrong, buying subject to is legal, but you actually do need to know what you are doing. Any guru (or group) you follow that shows you how to do the negotiating and paperwork is only telling you half the story. The fun part. 

It isn't jumping out of the plane that hurts, in fact it's a pretty nice view, it's hitting the ground that does the damage.