Re: Buying a property “Subject to” - Posted by Brent_IL
Posted by Brent_IL on October 12, 2003 at 13:08:46:
Subject-to has no bearing on the questions that you?re asking.
Just for a moment. Forget subject-to and think of a new loan. Then rephrase your question. ?Is the seller legally bound to the RE agent to pay a commission if I take over the property by going to the bank and obtaining a new loan to pay off that portion of the sale price that does not belong to the seller?? The correct answer is ?Yes.? The total amount of liens against the property is not owner?s equity.
Subject-to transactions are a method of financing a property, and that?s all that they are. We use this method because there is no arbitrary limit to how many one can do, qualification is instant and guaranteed upon acceptance, and loan costs are generally lower. If you had an 850 FICO score, and access to a bank that offered unlimited loans, and your seller had a 95% LTV loan at 20% APR, would you be considering taking over the payments subject-to?
When we talk about saving the broker?s commission, there is a presumption that the property is not listed, and the seller has a choice between selling to us on our terms, and listing with a real estate agency in hope of getting an offer that is more appealing, e.g., cash-to-mortgage.
As a comparision, it is often said that the chances of a loan taken over subject-to being called by the bank are slim. It?s true that there is no ?do-on-sale? jail. However, when you advocate that the seller wait out the listing agreement and deprive the real estate agent of a commission, so that he can sell to you, that?s called torturous interference of a contract. It is illegal and there are real damages and the outside possibility of a real jail.
Compared to the number of times this is advocated, the chances of you being sued are very slim. Maybe, one-hundred thousandth of one percent. For the individual who was chosen as a test case by a real estate agent?s association or a large brokerage house, the effect on them is 100%. To that person, the actual chance of repercussion is meaningless. If you do this frequently, the possibility that you will irk someone increases.
At any given moment, I can?t make a property worth more to me than it is. Like most others, I just factor the commission payment into any offer on listed property. The seller agreed to the terms of the listing agreement. As suggested, if the agent has no one else in the wings, he or she might be willing to accept something other than what was agreed to in the listing contract. Most of the marketing efforts of creative real estate investing practitioners are designed to get a seller to call us before they list with a real estate broker. That?s where the ?saving the commission? comes into the picture.