what is Subject to - Posted by John

Posted by Gene on March 09, 2006 at 15:55:34:

Taking over thier existing loan.

You should read a few books and the articles on this site. It would give you a basic understanding.

what is Subject to - Posted by John

Posted by John on March 09, 2006 at 15:19:09:

I am a newbie. Can someone please explain what Subject To means. Thanks

Re: what is Subject to - Posted by FrankIL

Posted by FrankIL on March 10, 2006 at 12:31:07:

Here’s a simple way to sum it up - when you buy conventionally you take out a new loan in your name and the seller closes out his own mortgage when he sells to you. So after closing you own the asset (house) and you are responsible for the mortgage you just took out. Now switch gears and look at the difference if you buy ‘subject to’. With this scenario you own the asset (house) but you don’t take out a new mortgage in your name - rather the mortgage of the seller you bought the property from stays in place. You now make the mortgage payments for the seller. But if you can’t make the payments the seller is still legally responsible for the mortgage and his credit could be ruined if you don’t pay. There are some stories in the news of fraudulent investors who take advantage of this situation and decide not to make the payments on the seller’s mortgage. But overall the majority of investors who buy subject to are true to their word and follow through.

Re: what is Subject to - Posted by Sean

Posted by Sean on March 10, 2006 at 08:13:18:

www.sub 2d eals.com

Subject to - Posted by John Merchant

Posted by John Merchant on March 09, 2006 at 20:50:07:

In RE deals, it means that the buyer is taking the property, but he’s getting it “subject to” its debt*, which Seller & Buyer have agreed to handle in a particular way so the bank is paid as the S has agreed.

But in a sub-todeal, the B is NOT legally “assuming” that debt, i.e. is not legally guaranteeing the bank that he, the B, will also be legally liable on that debt and thus the bank can only look to the S who signed the bank note.

In the normal everyday Sub To deal the B agrees in writing to make the payments, or sometimes agrees that the S will make the payments for the first few months, while the B is rehabbing the RE, then the B will make the subsequent payments until the RE is sold…but at no point will that B become legally liable to the bank itself.

Lots of other issues in Sub To, such as whether such an arrangement will cause the bank to foreclose under its “Due On Sale” clause; what happens if the B fails to make the payments as he’s agreed, etc.

So I recommend you do lots of study on this site and read some good books, such as Bill Broadbent’s terrific all-time classic “Owner Will Carry”.

It’s not the world’s simplest subject, and I’ve known a number of lawyers in various states who really didn’t grasp the concept…not stupid people normally, but they just hadn’t thought it through, had no exerience with it, etc. and just didn’t yet get it.

*In a sense, it’s kind of like buying a car that’s missing a front door…so the buyer can demand the S provide the missing door, or the S can demand the B provide the door, etc…but the B is getting the car subject to a missing door.

Where there’s a debt on a property, there’s clearly a 3d party (bank) involved, and they’re going to be mighty concerned that SOMEBODY make their payments, and they’ll foreclose if nobody does so.

The bank couldn’t sue the B, so their only legal recourse would be to either sue the S or foreclose on the RE itself.