Subject-to deals

[Tzvi Rosner]

Why would someone sign over their entire home to me just to be able to avoid the responsibility of paying the mortgage. They can move out and rent/lease and cover the mortgage which is any way what the prospective buyer is going to do in a subject-to deal?

[Jon Holdman]

I think you misunderstand how this works. When a house is sold "subject to", the seller no longer owns it. They will never get paid anything, if they don't get something up front. The buyer now owns the house and take over making the payments on the existing loan. "Subject to" is short for "subject to the existing loan".

Million dollar houses make horrible rentals. Half million dollar houses make bad rentals. A house that rents for $3000 and costs $500,000 is a horrible deal. A house that rents for $300 and costs $50,000 is an equally bad deal.

If you had a house worth $1 million and had $500K in outstanding debt, the only way you might sell subject to was if you received a $500K down payment. That might well make sense. You get you asking price on a house that may be difficult to move. You can half up front and the other half in the form of someone else taking over the debt payment.

Most subject to deals do not involve such numbers. They're for a house worth $100K with $95K in debt or some such. The seller would only net $94K after commissions, and would have some closing costs. A subject to deal still has some closing costs. So, if the buyer and seller can cover those, the seller gets rid of a debt and the buyer gets a house without having to qualify for a loan.

Only an idiot would do a subject to deal on a house with 50% equity without getting cash up front.