Taking property Subject to existing loan - Posted by robert

Posted by JohnBoy on December 20, 1999 at 13:21:12:

Taking property “subject to” the existing loan means the lender is NOT aware. You are entering into a contract with the seller by you agreeing to take over their payments. The seller deeds the property to you, you become the legal owner of the property, you are not liable to the lender for the loan, the seller remains liable. However, you are liable to the seller to make those payments to the bank on time.

This commonly done by having the seller deed the property into a trust naming them as the beneficiary. The seller then assigns his/her beneficial interest over to you making you the beneficiary of the trust. Your the legal owner of the trust that has title to the property. If the lender was to check title it would show the trust as the owner. It does not show who the beneficiary is which helps in hiding the fact that property has changed ownership. This helps from the lender finding out where they could call the loan due under the “due on sale” clause written in the mortgage agreement.

If all the payments are made on time then it’s highly unlikely the lender would find out and/or call the loan due. Worst case senerio the lender does find out and calls the due. Then you just refinance the property assuming your in a position to do so. That’s why it’s important to disclose all the risks to the seller prior to doing this.

Taking property Subject to existing loan - Posted by robert

Posted by robert on December 19, 1999 at 12:59:59:

Can I take a tax write off(deduct interest expense) of a mortgage which I take subject to.

I’m thinking of taking over the payments to an existing mortgage on a SFR. This would be my primary residence. Can I deduct the mortgage interest payments I make to the loan, eventhough I did not create or assume this mortgage.

Will the IRS require that I show proof that I my name is a mortgagor in that loan.

Secondly, after two years, when I sell the property, can I claim a $250,000 tax exemption(tax free) sale. For example lets say I buy a property(subject to an existing mortgage) for $200,000 in Nov 1999, then I sell this property in Dec 2002 for $450,000, at a profit of $250,000. Can I claim this $250,000 profit as tax free sale since I held title ownership for more than 2 years.

Add an attachment to your return - Posted by Bud Branstetter

Posted by Bud Branstetter on December 20, 1999 at 12:47:40:

On the attachment state the mortgage interest reported under what SSN to what lender was paid buy you. The IRS won’t rat on you to the lender. They just want to recocile their books and make sure only one person deducts it.

Re: Taking property Subject to existing loan - Posted by Phillip

Posted by Phillip on December 20, 1999 at 09:25:00:

Please explain under what “subject to” means and what circumstances must exist for this to occur. Is this something like a L/O except the lender is aware of the change???

Yes - Posted by JPiper

Posted by JPiper on December 19, 1999 at 14:19:29:

The answer is Yes to both of your questions