Taking property "subject to" - Posted by WilliamGA

Posted by WilliamGa on August 29, 1999 at 13:49:21:


Taking property “subject to” - Posted by WilliamGA

Posted by WilliamGA on August 29, 1999 at 12:58:44:

Hello Everyone!

I had a lady call me yesterday about a home that she wants to sell. She is retiring and moving back home to N.C. and wants to sell and possibly get a little cash from her home. After talking with her, she said that since she wants to leave quickly, she might consider letting her home go for the loan balance only. I got her address and drove by and it is a nice home in a good area. She says she owes around 71k on her loan. I checked comps and they are around 85k.

My question is, on taking a property “subject to”, what exactly has to be done? Do I just have her sign a contract agreeing to this and let an attorney check title and close it? Should I have her property put into a land trust? What CYA forms should I get? What costs should I expect in acquiring a property this way?

Sorry for so many questions, but this will be my first of this type if it goes and I want to get it right before I go sit down with her later today.

Her present mortgage payment is 670.00 and this house could easily rent for 850.00.

Thanks in advance for all replies,


My Experience in AZ - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on August 29, 1999 at 13:46:10:


My first deal was “subject to”. However, since it was in foreclosure, we kept the lender informed during the sale. I reinstated the loan, put my own insurance in place, and took over the payments.

In Arizona, most transactions are closed through title companies. If the home wasn’t in foreclosure, my closing agent wouldn’t even contact the lender about this deal. I would simply have provided the contract to purchase, and requested that the seller give me pertinent information about the loan (ie: monthly payment, account number, mailing address, outstanding loan balance, and insurance company). You will, of course, want to verify this data as much as possible. It would be unfortunate to “think” that you were buying the home for $71,000 when, in fact, the loan really has a balance of, say, $82,000.

The use of a land trust might help you keep the ownership transfer out of the lender’s sight. As you know, such a transaction triggers the dreaded “due on sale” clause. However, if the loan sports an interest rate above today’s current rate, it is unlikely that the lender would willingly call the note due.

If you desire, you can help the seller set up a land trust with the seller as named beneficiary. At the closing, the seller will assign his/her beneficial interest in the trust to you. Also, you’ll want to have the seller contact his/her insurance company and name you, or your company, as an additional insured on the policy. To my knowledge, there are no “hidden” costs in acquiring property in this manner.

MAKE SURE that your contract discloses that the seller remains liable for performance of the loan under a “subject to” transaction. It is important that the seller understand this significant fact in the deal. They are relying upon you to keep the loan current, and their credit clean.

Finally, unless you have a deal worked out with the seller, the seller will probably get any tax and insurance overages in the loan escrow account when you sell or refinance the property. When making your offer on the property, keep this in mind. It could amount to $1,000 or more.

I hope this helps.

Bill K. (AZ)

Re: My Experience in AZ/ALL LENDER WANTS IS MONEY - Posted by Herb McCandless

Posted by Herb McCandless on August 29, 1999 at 14:13:52:

Just remember the lender has first lein and all they want is their money. They are most likely not going to foreclose because they arent in the property business and dont want to be. I would recommend closing it through an attorny or title company which ever your state does. It should be no problem doing this whether you use a land trust or not, however a trust is recommended by all.

Good Luck
Herb McCandless