SUBJECT TO

[Debbie David]

What is the risks involve in subject to deals.

[Wendell De Guzman]

Debbie David, I have done a lot of subject to's.
The risks are:

1. Due on sale clause (can happen but not likely to happen): this means the bank can call the loan due because there is transfer of title

2. Tenant/buyer or end buyer does not pay and you're stuck with the mortgage payment (to me, this is the biggest risk which you can mitigate by getting a good tenant/buyer with substantial non refundable option consideration)

3. Property does not appraise for the Option price you agreed with your tenant/buyer (I stopped buying subject to's when the market went down precisely because of this issue)

4. There could be liens and other title issues (what if there is an unrecorded lien on the property). This risk can be mitigated by doing a title search and buying title insurance.

5. Liability issues - there is a possibility the seller can go after you, say if the mortgage payment is not made and the property goes into foreclosure. You don't plan in doing this but it can happen specially if your tenant/buyer does not pay the rent (and consequently, you can't pay the mortgage). This can be mitigated by getting a good tenant/buyer and keeping 3-months of mortgage payment as reserves. You can also get rental income insurance (not available in all states) and you can have up to 6 months of rent guaranteed.