SUB 2 with VA loans

[Kenneth Littrell]

I am working in a military towm. Does anyone have any real experience with doing SUB 2 with VA home loans? More specifically, can it be do

[Phil Pustejovsky]

I've done plenty of them. You're biggest issue is that at some point in the near future, the seller is going to want to use the VA certificate again and you are going to have it tied up because their existing loan is taken subject to. So be prepared for having to pay it off in a few years, if for no other reason besides the fact that the seller will want to buy a new home down the road and you will be holding that up.

Also, when you buy a property subject to, go the traditional route of using a closing attorney (or title company, depending on the state), get title insurance, and the whole 9 yards. Then, to ensure you are not potentially walking in the gray area of hiding from the lender that the transaction has been done (some loan docs say that the borrow must notify the lender if the title transfers), send a letter to the address on record on the Deed of Trust or Mortgage (depending on the state) that title has transferred and keep a record of this. We have never triggered the due on sale clause after sending this letter and it is definitely nice to have that in your back pocket in case the seller flips out three years later, calls Legal Aid and starts spouting off that you were a party to loan fraud. When you show the letter that notified the lender, all of the sudden, that opposing attorney has very little to sink his teeth into. Plus, the fact that it was done at a closing firm adds more legitimacy.

BIGGEST drawback to the subject to is the fact that oftentimes you have to pay double in property insurance. If you try to replace the existing insurance and the VA loan is paying the insurance each year out of the escrows it is collecting, if they see a different name besides the borrower, they may cancel the existing policy and put a forced policy in place which is very expensive. Instead, usually the safest bet is to leave the existing policy in place and then pay for another policy that you pay for not in escrow. It's double paying of insurance but is often times cheaper than the alternative. We have also successfully gotten our policy to slide through and be updated on the file, especially in situations where insurance payments are not escrowed.