Guys, explain a "Subject To" please... - Posted by Scott SC

Posted by Branden on May 02, 2000 at 11:56:37:

Ed’s correct. Unless the loan says it’s not assumable, then it is. The only problem is that it’s pretty rare to find a newer mortgage that doesn’t have non-assumable language.

One item to mention that’s often overlooked with seller financing. If you’re looking at a property that was originally purchased via contract for deed, or with a seller-carried note, your seller will usually tell you that the person they purchased from won’t let you assume it. The great thing is, is if they didn’t specify non-assumble or insert a due-on-sale clause in their mortgage or note, then it is assumable, whether they like it or not. I’ve had several cases where my seller told me their seller wouldn’t allow assumption. When I looked at their paperwork it was evident that their noteholder had no choice.

Guys, explain a “Subject To” please… - Posted by Scott SC

Posted by Scott SC on May 02, 2000 at 10:01:15:

Can someone please give me the quick and dirty on “Subject To’s” please. I know it has something to do with assumable loans…

Re: Guys, explain a “Subject To” please… - Posted by Soraya

Posted by Soraya on May 02, 2000 at 13:02:18:

A ?Subject To? transaction is one in which the Buyer purchases the property and the existing loan is not paid off at close of escrow. The lender does not consent to the transaction and therefore the lender is not notified that there has been a sale, the Buyer does not formally assume the existing loan(s) and the Seller remains as the borrower on these loan(s). The property, however, remains encumbered by the lender?s trust deed and therefore, the Buyer is said to be taking title to the property ?subject to? the existing loan(s). The Buyer must make payments on these loan(s) or risk foreclosure of the property. Buyers sometimes take title ?subject to? more than one existing trust deed.

Re: Guys, explain a “Subject To” please… - Posted by Branden

Posted by Branden on May 02, 2000 at 10:37:13:

Actually “subject to” has nothing to do with assumable loans. When you assume a loan you become responsible for the payment of that loan.
Ex… Seller has a home with $50,000 mortgage from Mortgage Company. If the loan was assumable, which very few are, you would have to qualify with Mortgage Company so you could become legally responsible for the loan. Instead of assuming the loan, keep the loan in the sellers name. The seller is the one that remains responsible for the loan. Their credit is tied up, not yours. You will obviously need a motivated seller to do this because most people don’t want their credit tied up. Often times individuals don’t want their credit tied up long term, but they need out. They’re usually willing to allow “subject to” with payoff in 5-10 years. This solves their immediate problem but frees their credit in the future.

Re: Guys, explain a “Subject To” please… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on May 02, 2000 at 10:35:45:

What the lenders like to see is the term, ASSUME AND AGREE TO PAY when referring to the mortgage being assumed. Quite often the like to run credit checks on the new buyer as well. The key part of this language is “agree to pay”. As a new buyer I do not want to do that. Now I know that if the payments are not made I cannot keep the house. But I do not want to become responsible for this property personally.
So I take title “SUBJECT TO” this means I know the loan is there, and I know that the payments need to be made, however if sometime in the future the mortgage goes into forclosure the property (and perhaps the original purchaser) will be responsible for repayment of the loan. End result if the property is sold for less than the amount owed I CANNOT be sued for a deficiency judgement. The original purchaser, if he signed personally liable remains liable; unless he gets released from that liability when he sells the property to me. “SUBJECT TO” is best for me as a buyer, and probably not best for anyone else…ED

Re: All loans are assumable - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on May 02, 2000 at 10:51:40:

All loans are assumable. Other than that I agree with everything Branden said. The reason that due on sale clauses are found in most mortgages today is to give the lender a way to terminate the loan if he does not like the new buyer, when he assumes the old loan. The use of the due on sale clause became widely used when interest rated were running up and down a lot in the 70’s abd 80’s. Some folks on this board were not around then, some were. An example would be the lender originates a loan at 8% interest and two years later the interest rate for new laons was 14%. So the lenders needed a way to stop the old low interest rate loans from being assumed, and to rewrite the loans at the new rate. This is where the use of the due on sale clauses came from, because all loans are assumable unless otherwise stated in the mortgage note…ED