"Subject To" Question - Posted by Adam Inocent

Posted by JohnBoy on May 11, 2002 at 12:16:24:

Also, if you were running around making a habit of this type of practice where you were taking deals subject to allowing them to go into default you could end up facing prosecution for frauding sellers out of their homes when you had no intentions to make good on your deals every time one of your buyers defaulted. Not to mention the bad reputation you would be giving to all investors that are doing these types of deals.

“Subject To” Question - Posted by Adam Inocent

Posted by Adam Inocent on May 10, 2002 at 17:18:36:

Someone replied to one of my earlier posts and told me that when buying something “subject to”, that the original owner is out of the picture and I am completely liable for everything.

Morally that makes sense…

But from what I have learned in the past few days from reading the how-to articles and money making articles, the original owner is STILL responsible for the loan which you are paying for him. But in the event that the person who is paying the new mortgage to you defaults, then the original owner is the one who suffers, is that correct? This is all assuming, me, the newbie investor, is broke, and can’t keep up with the original owners payments myself.

Just wanted to clear that up, any help would be appreciated.

Re: “Subject To” Question - Posted by JohnBoy

Posted by JohnBoy on May 10, 2002 at 18:02:45:

The original owner is still liable for the loan, but YOU are contracted with the owner to make all his payments. If your buyer defaults then YOU need to make the payments. If you default the lender will foreclose and still go after the original owner that signed on the mortgage, but the owner can come after YOU for breaching your contract with him.

You can’t just run around taking property subject to and enjoy the good times while your buyer pays and then just tell the owner its his problem when they don’t pay. You still need to be able to cover the payments no matter what because YOU contracted with the owner to do so.

If you were to tell the owner that you will take his house by having him deed it over to you and as long as your buyer pays he has nothing to worry about. But if your buyer stops paying you then he is stuck with making the payments again on a house he no longer owns! Do you THINK the owner would ever agree to that??? Of course not! They want to be guaranteed that they will never have to be bothered with it and that you WILL pay off their loan eventually and make all the payments ON TIME until that happens! Otherwise they wouldn’t be willing to just hand their house away to you and allow you to screw up their credit anyway! They give you the house because YOU are guaranteeing to make those payments. The lender can’t go after you if the payments aren’t paid, but the seller can sue you for not making the payments as agreed which is part of your contract with the seller.

seems to me… - Posted by Orbit Rain

Posted by Orbit Rain on May 11, 2002 at 05:30:45:

Seems to me that the answer is to build a big enough cash cushion to ride out a bad T/B. Otherwise stay away for your own good. You rolls your dice, you takes your chances.

What’s it worth (to you guys with the cushions) to be given a deal paying out ala JohnBoys “Best Way To Get Started” post? That is:

$5k option money up front
$1700 first months rent
$1700 second months rent
$300 x 10 months rent = $3k
$15k at closing ($160k - $145k = $15k)

That’s $26,400.00 over 12 months total PROFIT!


seems to me that’s the reward. What would you pay me for the priviledge are placing that bet? How much more if I get it all wrapped together? All that cash up front I got from the T/B…lemme have it, you can have the payments and the juice at the end, you just have to hold onto it a litle while…whad’ya think?


Re: “Subject To” Question - Posted by JJZ

Posted by JJZ on May 10, 2002 at 18:51:01:

And if the seller is persuaded to establish a land trust and put the deed into the land trust and assign the beneficial interest to the buyer, are any other papers that guarantee payment on behalf of the seller going to be filed at the courthouse? And would they have the buyers name anywhere on them?

Re: seems to me… - Posted by JohnBoy

Posted by JohnBoy on May 11, 2002 at 11:55:53:

I think that works great if you are assigning the deal to your tenant/buyer that will live in the property. As an investor I wouldn’t be interested. I may give you $1k of the option money to allow you to get in and out of the deal, but that’s about it. Of course if the deal had a lot more juice to it then I would go more! But that’s just me looking at it from my end as an investor. So to get more from the deal just assign your contract you already have with the seller over to your tenant/buyer for the amount of the option money and they get your contract that allows them to get the better deal you have with the seller rather than getting the retail deal with you if you were to stay in the middle.

Re: “Subject To” Question - Posted by JohnBoy

Posted by JohnBoy on May 11, 2002 at 12:20:26:

It doesn’t matter how you take title or what papers are recorded. Bottom line is that you entered into a purchase agreement with the seller stating you are buying their property subject to their existing mortgage. You still need to have a purchase agreement between you and the seller. The seller would have recourse based on you breaching the purchase agreement you signed. The purchase agreement states the terms of the sale regardless of how you take title or what gets recorded.

Re: “Subject To” Question - Posted by Brent_IL

Posted by Brent_IL on May 11, 2002 at 12:08:18:

I think JohnBoy’s point was that no land trust, assignment, or any other papers will guarantee payment to the seller. The guarantor is the L/Oer. It?s the individual’s obligation to make the payments. If you cover the payments, the paperwork is almost irrelevant. If you don’t have money to fulfill your obligations, the paperwork is meaningless. The seller may get a judgment for damages against you, but it would be difficult to collect from one who has little.