How To Structure a Subject-To Transaction

[Bill Gulley]

Okay, when you do a subject-to transaction, do you have the seller secured in the transaction or do you leave them hanging out there?

How do you secure the seller who takes back no equity?

You give them a deed of trust or duplicate interest stated in the security agreement, covering the note and deed or trust or mortgage that is assumed. A statement such as "This security agreement is to secure that interest in and to that original note and deed of trust dated xx, MMMM, YYYY, filed of record on the xx day of MMMM, YYYY in Book xx at Page xxxx, in connection with the sale made by and between the grantor and grantee hereof on the xx day of MMMM, YYYY, whereby grantor assumed that certain obligation hereby secured. This is a duplicate security interest and not an additional lien secured above the amounts outstanding of that obligation described."

Blah, blah, blah, legal description, terms of the security agreement.

If the buyer fails to pay the underlying mortgage the seller can take it back.

When a seller sells subject to, they can advance that underlying obligation to be assumed as a secured interest, in a wrap with excess equity you would include the original amount and combine the second amount or secure the first and file the second.

This was just brought to my attention.

So, how do you do it? How do they do the docs in a Sub-2 in your neck of the woods??? :)

[Account Closed]

I don't secure the seller with any recorded instrument in a sub2. There's a signed agreement that says what they are doing (selling sub2 existing debt, and often with additional liens) and what I'm going to do and by what date (reinstatement, make payments, pay in full, etc.). The agreement is binding. They can sue me if I don't perform. Interestingly, in my last two sub2 deals the mortgage was the least of the seller's concerns. They cared way more about income tax liens and HOA liens. And property taxes, even though property taxes attach to the property, lots of sellers are scared of governments and believe the county will come after them. Even after I explain that is not the case. I always pay them anyway, so I make that part of the agreement to make the seller feel better.