Subject To - What Does The Seller Do?

[Nathan Samuelson]

Good evening everyone,

I looked around on a couple of threads posted on this site, but didn't quite get the answer I was looking for, so I figured I'd just ask here! (Sorry if this has been asked a thousand times, which I'm sure it has)...

My question is, when trying to convince a seller to do a "subject to" deal and the seller asks "Where am I going to live after you take the deed to the house?" - How do I answer that, or what can I say to convince them it's a good deal? I know Subject To deals can save the sellers credit, and that in itself is good and often a selling point...but where does the seller live afterwords? Do they just normally find a place to live that's cheaper? Like moving into a mobile home or apartment? I have heard of buyers offering 1-2 thousand for moving costs, as a sort of incentive (and / or also paying off any liens against the title if not too high).

If the seller accepts a Subject To, they must have had some problems paying their mortgage, so how can they expect to take out another loan, or come up with any sort of money, if they needed it in the first place?

I guess in my head right now, it doesn't seem logical...."Let me take your house because you have no money and can't pay your bills...now sign over your house to me. Now you have no house AND no money - good luck."

Hopefully this makes sense. Thank you all in advance for responding!

[Account Closed]

Where were they going to live and how were they going to pay for it if they were foreclosed on and evicted? Where were they going to live and how were they going to pay for it if they are moving out of area for a new job? If sellers are making calls and talking to potential buyers it means their head isn't entirely in the sand and they are making plans.

First off, not all sub2 deals involve a borrower in foreclosure. Secondly, not all sub2 deals involve borrowers that don't have equity. If there is a pending foreclosure, you reinstate and stop the foreclosure, thereby giving everyone more times to do the deal in an orderly fashion. If they have equity, you pay them something for the deed.

People in foreclosure who can keep the lights on and who are putting gas in the car are making choices. They are not making a housing payment, and that may make the most sense depending on their situation. But that doesn't mean they are 5 minutes from homeless. Many borrowers don't make payments for 12 months or more. In this post Bubble market, I've seen no payments for 2-3 years, even without a bankruptcy. That's a lot of free rent.

People who aren't in foreclosure but want to walk from the house might not want to deal with selling it, might not have enough equity to sell it, or don't want the consequences of a short sale.

One note about "saving credit": I strongly suggest you never mention anything to a seller about "saving" their credit or use it as a selling point. You can say you'll be making the payments in a timely way, but that all IMO. A borrower that's in default will have trashed credit for a couple of years, even without a foreclosure. You are not privy to all the things that are wrong with their credit. You can't make claims about fixing or keeping good credit without crossing over into regulated territory. Do not hold out your offer as having anything to do with fixing or maintaining their credit. Let them analyze the benefits, if any. Same goes for tax considerations. Do not suggest or advise about capital gains, or losses, or insolvency. Always advise getting legal and financial advice, and put a clause in your purchase agreement that says they understand and agree that you said that.

I know it hard to see it from here, but after you've taken over a property that someone wanted to get rid of (or after you've been a motivated seller yourself), you'll understand. Trust me on that one.