Subject-To Deals (The Strategy)
Purchasing Real Estate “Subject-To”
Purchasing real estate “Subject-To” is an investment strategy that allows investors to acquire a property with little or no money out of pocket by leaving the seller’s existing mortgage in place. More simply, the investor does not have to get a loan through a bank or a hard moneylender.
Often subject-to deals are called “subject-to” because the property is purchased “subject to” the existing loan or loans. An added benefit of this type of investment strategy is being able to control a property by having the seller of that property continue to hold their bank financing in their name, yet give the interest, benefits, and responsibility of the property to the buyer. The seller’s name remains on the loan and they still remain liable for the payments if the buyer does not pay them.
How to Find Subject-To Houses
Often the best ways to find houses that are great candidates for buying subject-to are buying houses that are owned by distressed owners.
These often are homeowners who are undergoing a sea of emotions and may be more eager to sell than others. Scenarios such as foreclosure, divorce, or a death in the family are some possible causes for someone’s motivation to sell their home subject-to.
FAQ About Subject-To Sales
Will the lender call the loan due if the property is sold subject-to?
Often owners ask if the lender will call the loan due if the house is sold subject-to, and the answer is yes they can, but more than likely they won’t. Most of the time calling a loan due is not in the best interest of the bank even though they have that right.
Almost all mortgage loans are less than 25 years old and will carry a “due-on-sale clause,” which allows the lender to call the loan due if the buyer does not follow the terms of the loan. While the bank may have the right to call the loan due, typically the bank will not do so if the loan payments are being paid on time.
The Bank Does Not Want to Manage the Property
Banks make money by lending and collecting money; they do not want to be managing the properties of their defaulted loans. They do not want to call the note due if they don’t have to, especially if the balance is being paid. Most home buyers who buy homes subject-to want to keep their homes. It is more than an investment to them; it is their home, where they plan on living for the next 10+ years.
The truth is, as long as the loan is performing, more than likely the bank will not spend the time to see who is actually paying the bill.
How Will Selling Subject-To Affect the Sellers Credit?
Seller’s benefit with sub-to deals
Most of the time there will be no affect on the seller’s credit. However, if the seller has missed payments in the past and the buyer makes up those missed payments and pays on time, it can actually improve the seller’s credit score.
However, if the seller were to sell their home subject to the existing financing to a buyer that is not able to make the payments on time, the seller’s credit could then be damaged.
Here are three more productive ways to find sellers who might be interested in selling their home subject-to:
1. Notice Of Default: available publicly, is a notice that banks send out to borrowers notifying them that they are delinquent on their mortgage payments.
2. Notice To Condemn: notifies the homeowner that their property doesn’t meet zoning or building code requirements for that county.
3. Notice Of Divorce: this happens before the actual divorce, and provides a clue that a divorce will happen in the near future.
So now that you are convinced that the good deals in real estate depend on identifying these motivated sellers, how do you go about and find them? Your local County Recorder’s office is an indispensable research source. Put on your CSI thinking caps, and start finding leads!