Thread: What is "subject to"?

"subject to".. fill in the blank.

We are investors, and we write our offers:
.. subject to buyer's satisfactory approval of inspection.
.. subject to property and buyer qualifying for financing and buyer's satisfactory approval of financing

I think it's just a way of saying they aren't buying AS-IS.

Rentec refers only to contingencies. "subject to" is not that.

A "subject to" purchase is a purchase where the buyer is going to assume the existing seller's mortgage. The seller quit claim the deed to you (for a fee or not) , you get the property and you pay the mortgage.
While buyer's name in on the new deed, there is no new note and seller's name remain on mortgage and note.
Be creative to circumvent the most probable "due on sale close". There is several way to avoid that. However, these days, banks are more than happy to get a check from an unknown person than defaulting on the property.

I recently have been approach by a couple who was 3 months behind and facing foreclosure. They quit claim the deed to me, I paid the 3 months due and pay the monthly mortgage. It's a way to buy with no bank fee and with little down (if any) without to be qualified.
They are very happy I save their credit, but by paying their mortgage, I'm rebuilding their credit as well. I use to refi these properties later on...

'Subject to' is often referred to as `pre-qualifying terms and conditions'. In other words thats where the `catch' comes in. Correct me if Im wrong.

Cody,

So then do you lease the property to the former owner, or do a lease purchase with other people, or what? Could you list and resale the property?

I didn't know that assuming someone's mortgage was that easy...

Brad.

Originally Posted by BSS2T

Cody,

So then do you lease the property to the former owner, or do a lease purchase with other people, or what? Could you list and resale the property?

I didn't know that assuming someone's mortgage was that easy...

Brad.

You are on the Deed, you are the new owner, so you do what you want: lease to previous owner, lease to somebody else, L/P, list and sell or live in...whatever...

Cody,

I apologize buddy, because I think I am beating a dead horse, but...
basically it is a purchase and sale of RE but the new owner just assumes the former owner's mortgage? How then, do you get around the "due on sale" clause in the note? Also, since the mortgage is still in the former owner's name, that will be factored into their DTI if they try to apply for another loan, correct? Also what happens if the new owner defaults?

Sorry for all the questions, just trying to wrap my head around this one.

Thanks again.

Brad.

Originally Posted by BSS2T

Cody,

I apologize buddy, because I think I am beating a dead horse, but...
basically it is a purchase and sale of RE but the new owner just assumes the former owner's mortgage?

Yes

How then, do you get around the "due on sale" clause in the note?

With a lease for example...

Also, since the mortgage is still in the former owner's name, that will be factored into their DTI if they try to apply for another loan, correct?

Yes.

Also what happens if the new owner defaults?

The previous owners are screwed...

Originally Posted by BSS2T

How then, do you get around the "due on sale" clause in the note?

In reality... you don't... The title HAS transferred (in a TRUE Subj-2 deal) and therefore the lender has the right to call the note due and payable, if they wanted to. I have NEVER seen any lender do that, especially during these times, since a performing asset is better than a deed, so generally as long as the note is being paid, they don't care who is paying. (Sort of the "Don't ask, don't tell" policy.) But again, in a subj-2 deal, since the title HAS TRASNFERRED, the lender has the right to call it due.

Originally Posted by BSS2T

Also, since the mortgage is still in the former owner's name, that will be factored into their DTI if they try to apply for another loan, correct?

That is true, except that the former owner's income can be increased by providing the previous owner a lease agreement that indicates that they are receiving the amount that the mortgage is each month as "rent."

Originally Posted by BSS2T

Also what happens if the new owner defaults?

Same thing as if the original homeowner defaults... The house goes into FC... Of course the original homeowner's credit gets hit, not the current homeowner's.

Later.

Originally Posted by BSS2T

I have heard the investment term "buying subject to" quite a bit the past few days. Can anyone explain this?

Thanks,

Brad.

jubject to is basically any contingency added to a contract or deal - it can be subject to financing that the said deal and agreement is only binding if sufficient financing can be obtained - this is a very important point in today's market where financing can be very difficult if not impossible to get and ones downpayment is at risk if the deal would not be subject to it.