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Subject To

What is a subject to sale?

Subject to is a way of purchasing real estate where the buyer takes title to the property, but the existing loan stays in the name of the seller. In other words, "Subject-To" the existing financing. The buyer now controls the property and makes the mortgage payments on the seller's existing mortgage. We are able to buy at market price or sometimes more because we acquire favorable terms. 

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Why would any seller do this?

Should I sell my house Subject to or on Market through a realtor? You will usually get the most for your home if you sell it through a realtor. We love realtors and they provide a ton of value to get top dollar for your home. However, if you have problems selling your home on the open market, or need to sell quickly. Here's where creative financing could work for you.

  • In low or no equity situations- In this situation, after selling costs (about 10-12% of the purchase price including closing, marketing, holding costs and realtor commissions), the seller will have come out of their own pocket to get the property off their hands. The seller is now able to walk away without needing to bring money to the closing table or do a short sale.

  • Seller can walk away with the same or sometimes even more money in their pocket than a traditional sale. As mentioned above, depending on the seller’s mortgage balance, the seller may have little to no equity after closing costs and commissions. With Subject-To, we can sometimes pay even more since we are buying based on the cash flow the property produces as a rental and not based on the property's retail value.

  • Seller is able to move on from the property. The seller no longer owns the property and therefore is no longer responsible for expenses such as repairs, maintenance, utilities, taxes, insurance, HOA etc.


  • Seller’s credit improves with on time payments to mortgage paid by us


Frequently Asked Questions

Is this legal?

  • Yes, In HUD statements that get distributed at the end of a real estate transaction to show an overview of how all money was distributed, there is actually language and place holders in there for loans getting taken over via subject to. For actual proof of this, Please see the following link and read lines 203 and 503. 

  • Title companies actually provide insurance for these types of transactions.

How will I know the mortgage payment will get paid on time?

  • We set up a third-party servicing company to withdraw money from our account and make direct payments to the mortgage. Setting up a third party servicer also shows proof that payments are being made by the buyer.


What happens if you miss a payment?

  • We use a Performance Deed or Deed in Lieu pre-signed and held at the title servicing company. The house is effectively transferred back in the seller's name if the buyer defaults over a 30 day period. The seller in this situation would inherit the property back and benefit from any and all loan paydown payments, improvements made to the property, and appreciation that the property has seen. The seller could then sell the property again for even more money if they didn’t want to keep it. Sellers who have done this have often mentioned to us that they hope we miss a payment.

Who is responsible if there are repairs or maintenance needed on the property?

  • The seller would not be responsible for any repairs or maintenance on the property after the deed is transferred. The person responsible for any repairs or maintenance would be whoever is on the deed of the property. Since the seller’s name would only remain on the mortgage and the deed would change into the buyers name, then the buyer would be responsible for all of the repairs and maintenance.

What happens if the house gets trashed and then you default and I inherit the property back?

  • We would never let that happen for a few reasons. Firstly, we always have property insurance to protect from these types of situations. If the property ever did get trashed, we would just work with our insurance company to bring the property back up to its previous condition. Secondly, we would never let that happen because we already have spent a lot of money just to purchase the property. We would lose all the cash that we paid to the seller, the closing costs, the repairs and upgrades that we made in the property, and all of the payments towards the principal balance. Quite frankly, this would be financially irresponsible on our part and we probably would have been out of business a long time ago if this ever happened.

Won’t this affect my Debt-To-Income to buy another property?

  • For Conventional and FHA loans, we pre-pay 1 month of a lease agreement upfront and the lender that we use is typically able to wipe off 75% of the seller’s DTI right then. After 1 year of on-time payments, 100% of the DTI should be removed from the seller’s name. All you will need to do is show your lender that on-time payments are being made by us for the past year.

  • If you have a VA loan, the amount you can purchase on your next home would depend on how much entitlement you have remaining. If you didn’t have enough entitlement for your next property, then you can use your proceeds from the subject to sale towards the down payment needed for your next home.


How does subject to affect my credit?

  • Since the loan is left in the seller's name, when the on-time payments are made, the seller’s credit score is beneficially affected. The on-time payments to the lender gets reported back to the credit bureau and can significantly help someone who is looking to improve their credit score and can save the seller more money down the road to get their credit repaired.

How long do you plan on keeping the mortgage in the seller's name?

  • The short answer is forever. We always tell sellers and agents to plan on keeping your name on the mortgage until the mortgage balance is paid off. However, on average we keep a property for about 7 years. The average homeowner stays in a house for about 7 years and it’s no different for investors.


What happens if the Due-On-Sale Clause is called?

This rarely happens, but if the bank sees the deed has been transferred, they could request the remaining loan balance be paid in one lump sum because they believe the property has been sold (hence the name due on sale). We could do any one of the following.

  •  We have spoken to lenders before to describe the situation and they have rescinded their request because they ultimately care about their notes performing.

  •  We could also refinance or sell the property at that point to pay the bank back the mortgage balance in which the mortgage in the seller’s name would be paid off

  • Purchase the property in a land trust. “A lender may not exercise its option pursuant to a due-on-sale clause upon a transfer into an inter vivos trust in which the borrower is and remains a beneficiary” (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)). We would create a land trust and note the seller as one of the beneficiaries. Our LLC would be the other beneficiary. Banks cannot exercise a due-on-sale clause on a land trust.

If you find that we’re not the right option and you’d like to get your home listed instead,

we’ll be happy to connect you to the best real estate agents in the area!

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