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Updated about 8 years ago,

User Stats

35
Posts
13
Votes
Justin Webb
  • Investor
  • Kansas City, Missiouri
13
Votes |
35
Posts

Subject to, plus Taxes and Insurance?

Justin Webb
  • Investor
  • Kansas City, Missiouri
Posted

Hello BP,

I just need a little clarification on strategies using subject to. Specifically, how do you handle taxes and insurance? 

As I understand it, acquiring a property subject to the existing mortgage entails that the owner is still responsible for the lean, but ownership of the property is transferred to the buyer/investor.  The smart thing for the investor to do is pay an escrow company to ensure the mortgage remains current. As opposed to relying on the seller to pay a mortgage for a property he/she no longer owns. 

The gap in knowledge, or portion of the strategy I'm not finding, is how taxes and insurance are handled.

Some lenders collect a monthly payment that includes PITI. The taxes and insurance are deposited into an escrow account and paid annually on behalf of the borrower.

Once title is transferred, should the buyer/investor ask the seller to cancel the escrow account so that the only portioned paid is the principal and interest remaining on his or her mortgage? Would this cause any issue with the lender?

I suppose cancelling would be the correct way to do business since taxes and insurance are the responsibility of the new owner.

Let me know if I'm in the ballpark or if there is something I have missed.

Thank you.

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