Subject To aka SUB2

A lot of times I hear a lot of confused new investors talking about Subject to. So what does it really mean? I explain it to the sellers this way:

“I will take over your mortgage payments until I sell the house.”

sub2 means that you are taking(buying) the property subject to existing mortgage in this case. If seller has two mortgages you can take the property subject to both mortgages. If there are any other leans on the property you can take the property subject to those leans too. In essence you are acknowledging that there are liens/deeds to secure debt on the property when the title gets transferred to you.

How to execute a subject to deal:

Step 1. Agree on terms with the seller and sign the contract. (best to get one prepared by the closing attorney you will use to close the deal. And you will always do the closing with the attorney.)

Step 2. Get the seller to sign “authorization to release information” for each loan so you yourself can call the mortgage holder and verify the loan balance, terms, rate, etc. Payoff NEVER equals the principal loan amount.

Step 3. Order a title search. You want to know if there is a tax (or any other) lien on the property besides the mortgage(s) before you sign on the dotted line, because you would be taking those subject to too.

Step 4. After everything checks out as it should, close at the attorney’s office or at escrow agent, whatever laws in your state are. At closing, title (warranty deed or grant deed) gets transferred to you, so now you own the property.

Step 5. Pay the monthly mortgage payments. If you don’t the bank will foreclose and take the property from you. Since you bought the property subject to, the liens are still in place, no matter who is on the title.

And last but not least, do not confuse subject to with assuming the loan. You are not assuming the debt, you are agreeing to pay the payments on the debt. In other words you are not signing for debt personaly; the loans will still show on the sellers credit report.

This post was found on Wet Feet
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