Would you be interested in a technique that will allow you to purchase investment properties with no credit check, no loan apps, no waiting, and no stress? If so, learning to understand, and use the “Subject To” (Sub 2) real estate investing technique for buying property may be of great benefit to you.
What Does Subject To Mean?
“Subject To” also known or referred to as: “Sub 2” or “Sub To”, means: An offer to purchase a property was made Subject To the existing mortgage/financing on a property. In other words, a buyer expects to keep the current loan in play.
In a traditional property purchase, a buyer either pays off, or assumes a sellers loan, and then takes title to the property. The buyer at that point owns the property, and is liable to the lender for the payments on that loan.
With the Subject To Technique, the new buyer takes title to the property, but the old loan remains in place. This means that even though the new buyer has ownership of the property, they have no liability for the underlying loan. Then, in a Subject To transaction, the only money at risk is the profit, or equity acquired when the property is purchased.
The buyer has an incentive to make sure that all payments are made, and that is, to avoid losing the equity gained when the property was purchased. Another incentive to continue to pay the mortgage payment is the moral obligation. If the loan is not paid, and the property is foreclosed, it will hurt the seller.
Benefits of Using Subject To Investing Technique
Some of the benefits of using this technique include:
- No credit check
- No loan apps
- No waiting
- No stress
- Saves thousands on closing costs
- Little or no cash needed
- Possible better interest rates
- Possible cash at closing
- Effective for any type of property
- Quick and easy to set up
- Large profits possible
- Simple paper work
Why on Earth Would a Seller Agree to this Type of a Transaction?
There are a number of reasons why a seller will agree to this plan. Some of them include facing foreclosure, sickness, death, divorce, job change, behind on payments, old age, have an immediate need for cash, inheritance, tired of the hassle, living in another part of the country, and the list goes on.
Sub 2 Techinque – Common Concerns By Investors
Some common concerns about this technique include… Is this Legal? What about the “Due On Sale Clause”? What happens if I fail to make the payments?
Let me try to ease your concerns. Is this Legal? The answer to that depends on where you live. In almost every state in the U.S. it is legal to do Subject To deals. Some states have legislation outlawing this practice, so you will need to consult your real estate attorney.
The most asked question by far is–
What about the “Due on Sale Clause”?
Most mortgage loans written for the past twenty years have what is called a “Due on Sale Clause”. This is a clause that says the loan may be called due should the title change hands. The key words there being “may be”. The mortgager does have the right to call the loan due if the title changes hands–but in the vast majority of the cases they have chosen not to do so–especially if the loan payments are being made on time. Most banks would rather not have another bad loan on their books.
Real Estate Investors Responsible For Payments
What happens if I fail to make the payments? In most Subject to purchases, the buyer is not held liable by the lender for the note. That means if the bank does have to foreclose—the buyer’s credit would not be hurt. The bad things that would happen if the note payments were not paid would be, the buyer would lose all their equity in the property, and the seller would probably be very upset with them.
How To Do a Sub 2 Deal?
Step #1: Setting up a Subject to transaction if very simple—just: Add, or have your real estate attorney add, to the sales contract (in the Special Provisions section)—“This transaction Subject to the existing mortgage with…”
Step #2: Then, put all the information about the loan, such as the name of the lender, the loan number, the original amount, the monthly payments, all names on the note, and any other relevant information.
Step #3: Have your real estate attorney or broker prepare a Special Warranty Deed to transfer the title of the property to you.
Step #4: Get the seller to sign the sales contract, the special warranty deed and have the deed, recorded at the local court house.
Step #5: Have the seller list you as “additional insured” on the fire insurance policy for the home, or have the insurance policy changed to a landlord policy.
Step #6: Change the seller’s address to yours at the bank. This step concludes all that an investor will need to do for a Subject To (Sub 2) deal.
I hope this article will help you in your quest to build wealth through real estate investing. For more articles on real estate investor training, check out my articles here on REIClub.com