Finding an Owner Selling Real Estate By Subject To

By: Kathleen Couch

"Subject To" is when you purchase property subject to existing financing already in place, along with any other liens or encumbrances already attached. You do not formally assume the loan through the bank. The owner deeds the property to you, and you take over making the payments to the lending institution. Even in easy credit times every real estate investor should have "subject to" in their arsenal of financing methods. With the existing credit crunch, it is priceless.

Advantages of Buying Property by "Subject To"

1. Banks are not needed.

2. Low Closing Costs

3. Fast Closing Time

4. Credit not Needed

5. Use the owner's interest rate (usually lower)

6. Own the property with long term financing in place

Do Not Believe These Statements

1. Buying "Subject To" is illegal

2. You are not personally responsible for the loan

3. You don't need any money for "subject to"

4. The bank will foreclose if they find out

There is nothing illegal or unethical about buying a property "subject to". People who say this usually don't understand "subject to" fully. "Subject to" is on the HUD 1 statement on line 203. It says "existing loans taken subject to"

You are responsible for the timely payment of the loan you take over. The contract you make with the seller is enforceable in court. Even if it wasn't, you would not want to be unscrupulous in your dealings. Your first priority should be to the person you made the contract with concerning the loan, and any other parts of the contract.

Money is needed for a "subject to" deal. In some cases the homeowner has quite a bit of equity, and you agree to pay him some with cash. In the case of a pre foreclosure, you would need to catch up the loan first before taking it "subject to". Other times the home may need repairs before you market it. Or, sometimes you may only need money for holding costs.

About foreclosure, it is unlikely. As long as the payments are being made on time, the bank will most likely not foreclose. It is not fun, or profitable for a bank to foreclose. The average costs per property for a bank is $40,000. Plus, they have to hold in reserve, (not able to lend) 6 times the amount of the loan they foreclosed on. That is why lenders are short on mortgage money.

On the subject of worrying about if the bank finds out, I want to give you a personal example: I was making an automated payment on a loan, that I had taken the property "subject to". It was the policy of this lending institution that sometimes they come on the automated system with a live person. This happened this time. Along with some other general questions, I was asked, "Are you doing a "subject to" to buy this property"? I caught my breath, and said," Yes". The reply was, "Okay, just keep making the payments". What the bank is really interested in is getting paid.

This is the first of a two part article on "Buying Real Estate by "Subject To".

Sourcing for this article is: William Tingle:

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