Sub2 with equity-how to protect?? - Posted by Sam

Posted by JT-IN on October 19, 2005 at 15:25:35:


If someone buys a property Subject To, then they are recording a Deed. Period!.

If they get a Deed from the owner and do not record the Deed, first off they are foolish, and secondly, they are not the owner of record for the property. To insinuate that someone does this, or to attempt to answer a question, based on what someone might do or not do, other than what is supposed to be done… the text book approach, is useless. Unless for some reason that the question was asked… If I buy a property and DON’T record the deed, can the former owner go out and get a loan…? That wasn’t what was asked in the original post… and to somehow work that into the answer, simply confuses the issue, in the very least.

Here was the question of the original post: “when there is equity in the property (in this case there is $80k), and they deed it to me, is there a certain clause that prevents the owners (since their name is still on the loan) from taking out a HELOC or doing a refi?”

I simply can’t imagine reading into this that the original poster is NOT going to record the Deed. What is more a concnern for this purchaser, or any other Subject To purchaser, is that just prior to the Deed transfering the owner/seller has taken a HELOC which does not yet show of record, at the time of the title work and subject to closing, or they have taken a 2nd mtg, which again doesn’t show… Therefore, it is imperative IMO, in doing these deals to use a title agency, and obtain title insurance, as well as standard affidavits that a seller signs at closing, stating that they have NOT taken out recent financing, etc. This does not stop them from doing so, but it causes them to be an affiant to this fact, and it is fraud should they state one thing, and have done another. No amount of Deed recording will have stopped a fraudulent seller from obtaining financing… Let’s face it, when a seller is willing to sell property subject to, they are usually under some form of pressure, and may be looking for a way to get over on someone else, before their financial situation overtakes them. Again, this is a dangerous supposition, but it is one of the risks in dealing with damaged, aka motivated sellers…

You state that: “Warranty Deed to Trustee shows the property has been put into a Trust and does NOT necessiarly show TITLE to property has been transferred.” This is where we are having the other point of disagreement here… Transfer by Deed, Deed of any type, to a Trustee, is a conveyance and transfer of the property. The Trsutee is now owner of record, may be directed by the Beneficial Interest, but no where in public record does it state this. So from any Lenders perspective, who is underwriting new financing on a property that has had a recent, or not so recent transfer to a Trustee, will be a killer to any financing, period. What most lenders would require before any financing is to convey the property from a Trust to the borrower, then do financing, then reconvey back to the trust, just to avoid any later claim that someone else was the owner or beneficial interest.

So back to the original posters concern… of the former owner taking out financing after he receives a Deed, Subject To the original financing, whether that Deed is to a Trustee or directly to himself, and recorded, there is no legitimate lender out there who will underwrite such financing to the former owner… As I stated, the real risk is any financing prior to the conveyance shows of record, and now amount of verbage in any contract will eliminate a fraudulent intention or action of a desperate person.

You originally stated that a General Warrantly Deed and a General Warranty Deed to a Trustee were two different things… I think that you are mixed up here a bit… Whether the Grantee of the Deed be John Doe, or John Doe, Trustee, makes the conveyance no less valid. The fact that there is an underlying Trust, (contract) between the Grantor of the Trust, and/or the Beneficial Interest of the trsut, if it has been negotiated to a Grantee, and the Trustee, doesn’t make the Deed to Trustee any less binding than any other Deed. Counties do on occasion waive conveyance fees, where the Beneficial Interest remains the same as the Grantor of the Deed and the Trust. However, many are beginning to even require fees at this point, due to the fact that many arms length transfers of the corpus of a Trust have been made, without payment of transfer tax.

IMO, if folks are attempting to buy Subject To, and are afraid of the DOS clause, then they shouldn’t be buying Subject To… Anything other than that is like sticking your finger in a 220 outlet, just to see if the power is on… also not advisable. Yes, I do realize that do things different than me, and that is no surprise. Not that everyone needs to do as I do, but when discussing a fundamental technique, and one is so far afoul of common and proven successful business practices, then I just can’t seem to say… “I get it, and see why they do so…”

Anyway, enough time on that subject for me… Happy Subject To’s to you… and Record those Deeds, or stay home!

Just the way that I view things…


Sub2 with equity-how to protect?? - Posted by Sam

Posted by Sam on October 15, 2005 at 15:06:32:

I am taking a house subject to, the owners have rented to their son who is a deadbeat and the parents want to go sailing and forget about the house.

What I am looking for is this: when there is equity in the property (in this case there is $80k), and they deed it to me, is there a certain clause that prevents the owners (since their name is still on the loan) from taking out a HELOC or doing a refi?

It would be bad to take it subject to, start making the payments, put a RTO tenant in there and have the owners covertly strip the equity with a HELOC somehow.

I never thought about putting this clause in my paperwork until now! HELP!!!

Thank you everyone :+)

Here’s the answer… - Posted by PJ

Posted by PJ on October 17, 2005 at 09:28:24:

The posts below have a good point. However, they are missing the important issue:

Remember, this is a subject-to deal.

Therefore, there is no “warranty deed” recorded in the courthouse that EASILY tells any lender that title has transferred to someone else.

So, if nothing is recorded stating transfer of ownership, YES - the previous owners can get a HELOC.

So, it really depends on how you closed your subject 2 deal.

Did you put it into a trust? If so, you recorded a “warranty deed to trustee” - this should be enough for any lender to hold from giving out any loans, until they contact the TRUSTEE (hope this is you)

However, some people don’t record anything when they do a subject 2. In this case, YES, the previous owner can get a HELOC !

So, it all comes down to how you closed your deal…

Re: Sub2 with equity-how to protect?? - Posted by Natalie-VA

Posted by Natalie-VA on October 17, 2005 at 07:39:22:


Make sure you purchase title insurance before you put any money out… If there are any defects on title, they will uncover them.


Re: Sub2 with equity-how to protect?? - Posted by JohnBoy

Posted by JohnBoy on October 15, 2005 at 21:15:22:

It does not matter who is on the loan. Lenders don’t give loans based on who is currently on the loan. They give loans based on who the owner is.

If you buy a property the seller can not come back later and borrow against it because they previously owned it at one time in the past. You have to be the legal owner in order to pledge security against the property. Having your name on a loan in itself does not give you legal standing to borrow against the property. You have to own it. Once the seller deeds it to someone else the seller no longer owns the property regardless if they leave their loan in place or not. The current mortgage on the property has nothing to do with who owns it now.

Just make sure the seller doesn’t currently have a HELOC on the property where they could just write checks against it. Other than that, once they deed it to someone else they no longer own it and no lender will loan against it once they check title and see they are not the legal owner.

Re: Sub2 with equity-how to protect?? - Posted by whyK-CA

Posted by whyK-CA on October 15, 2005 at 15:13:35:


Taking sub2 means you are buying. You will be the new owner. The former owner cannot take HELOC on something they don’t own any longer.


Re: Here’s the answer… - Posted by Natalie-VA

Posted by Natalie-VA on October 17, 2005 at 10:43:01:


Buying Subject-To is just a method of financing. A deed transferring ownership still gets recorded at the courthouse.

A lot of the courses are teaching newbies to do these kitchen table closings. This can be very dangerous.

The poster should have this transaction closed at an attorney’s office or settlement agent and purchase title insurance.

I don’t know why someone would buy a house and not record the deed. It just doesn’t make sense to me.


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Re: Sub2 with equity-how to protect?? - Posted by Sam

Posted by Sam on October 15, 2005 at 15:16:02:

So you mean that once I get the deed, I record it (Countrywide probably will not call the due on sale)and that in itself since the property shows it transfered is all the protection I require?

Re: Here’s the answer… - Posted by PJ

Posted by PJ on October 17, 2005 at 15:24:49:

“A deed transferring ownership still gets recorded at the courthouse.”

This would be a warranty deed to Trustee, IF the closing is done properly.

Some people record warranty deeds, some record warr deeds, some record nothing.

That was my point to the guy - check first to see WHAT if anything has been recorded to prove transfer of ownership.

If nothing is recorded, YES the guy can get a HELOC

I’m with you Natalie - Posted by JT-IN

Posted by JT-IN on October 17, 2005 at 12:41:05:

You nailed several pet peaves in your post, and I can’t imagine wading into deep Subject To water, w/o the proper precautions either. Atty closings, recording of docs, and title ins. are at a minimum, IMO.

Re: Sub2 with equity-how to protect?? - Posted by whyK-CA

Posted by whyK-CA on October 15, 2005 at 16:10:47:

I wouldn?t call getting the deed recorded will give you all the protection you required. There are many kind of potential dangers, including the former owner getting mad at you and bring you to the court. If you haven?t, I suggest you invest some money on a course or two how to do sub2.

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by the way… - Posted by PJ

Posted by PJ on October 17, 2005 at 15:27:20:

You can’t go around recording warranty deeds on Subject 2 houses … that’s WHY most people don’t record deeds :slight_smile:

What…??? I disagree. - Posted by JT-IN

Posted by JT-IN on October 17, 2005 at 17:55:41:

Seeings how I have done it a number of times… The affidavit states that the title is free, unencumbered of any liens that "you don’t know about… and the Warranty Deed simply says that they warrant that info… That is also why I can buy title ins on a subject to, even though the existing financing is NOT paid off… The seller warrants title, not that there are NO encumbrances… just that it is marketable.

Lets say you take title with Quit Claim, and then the seller really did have a HELOC, then you are stuck… not with a Warranty Deed… They represent, and then warrant that representation. Whether their guarantee is worth anything or not, is to be determined…


Re: What…??? I disagree. - Posted by PJ

Posted by PJ on October 17, 2005 at 21:41:40:

You record a General “Warranty Deed” on your subject to properties?

A gen warr deed states previous owner is TRANSFERRING title to property to YOU.

Wow… so much for hiding from the due on sale clause…

You now amended your statement - Posted by JT-IN

Posted by JT-IN on October 17, 2005 at 23:08:11:

Here is what you wrote…:

“You can’t go around recording warranty deeds on Subject 2 houses … that’s WHY most people don’t record deeds :)”

Your comment says nothing about who the Grantee is in the Warranty Deed. It is not me personally, but a Trustee… But you say… that;s why peoplke don’t record deeds… If a Deed is NOT being recorded in a subject to deal, whether it be a Quit Claim or Warranty Deed, the receipient of that Deed doesn’t know what they are doing… period! To accept a deed and not record it is plain and simple malpractice of this trade.

To clarify what I do, and think that anyone else who does a Subject To deal should do, is… 1) Close with an Atty, not at someone’s kitchen table. 2) Buy title ins… 3) Warranty Deed with Trustee as the Grantee… 4) Title company records transaction just as they would any other standard RE conveyance.


yup… - Posted by PJ

Posted by PJ on October 17, 2005 at 23:25:39:

Warranty Deed & Warranty Deed to Trustee are 2 different things.

are you aware of that?

but we’re on the same page… I’m just pointing out to the guy that YES, it IS possible the previous owner can get a HELOC IF the proper deed isnt recorded.

I’ve run across a lot of investors who have done kitchen table closings or they record a GENERAL WARR DEED - which is stupid since it announces to anyone that the due on sale clause is breached.

I still don’t know what type of deed, if any, the orginal poster has recorded.

So, without knowing that, it’s impossible to say the previous OWNER cannot, with 100% conviction, go behind his back n get a loan on his property.

fair enuff?

puzzeled - Posted by whyK-CA

Posted by whyK-CA on October 18, 2005 at 13:58:18:

If you didn?t get the title conveyed ?. You didn?t buy.
If you got the title conveyed somehow?you bought.

I?m little puzzled by your post stating some people do sub2 deal without recording a deed. Why would they do that?

I guess one possibility is that someone gets the deed, not recording it, but moves right in. This serves as a constructive notice. But why would one want to do that is, beyond me.

Could you explain a little on this?

Warranty Deed & Warranty Deed to Trustee - Posted by JT-IN

Posted by JT-IN on October 17, 2005 at 23:46:56:

Explain the difference to me…