Subject to deal
Hi,
I need a real estate lawyer in PA who did subject to deals before. Philadelphia area, Chester county to be specific.
Please reply to my post and I will reach out.
Also have a question. If I take over the loan, does it mean the seller can't borrow any money anymore if he wants to buy a house in the future, since the loan is still under his name?
It is still the seller's debt and it remains their responsibility. Fannie Mae does have a loophole (taken directly from the Fannie Mae Selling Guide:
"In order for non-mortgage and mortgage debt to be excluded from the debt-to-income (DTI) ratio, the other party has to pay the complete monthly obligation every month for a minimum of 12 months (and the other party cannot be an interested party for non-mortgage debt).
For mortgage debt, the following additional requirements must be met:
- the party making the payments is obligated on the mortgage debt,
- there are no delinquencies in the most recent 12 months, and
- the borrower is not using rental income from the applicable property to qualify.
All other requirements of Debts Paid by Others in B3-6-05, Monthly Debt Obligations must be met."
I've made it no secret on BP that I think the subject to product takes advantage of sellers that aren't savvy. They usually have no idea that they are still on the hook and usually do not understand the ramifications of entering into a sub to agreement. A sub to deal does severely limit the seller's ability to purchase a new home as it does leave the debt in the DTI for some time and is not counted only if the above conditions are met. I hope that answers your question.
Quote from @Doug Smith:
It is still the seller's debt and it remains their responsibility. Fannie Mae does have a loophole (taken directly from the Fannie Mae Selling Guide:
"In order for non-mortgage and mortgage debt to be excluded from the debt-to-income (DTI) ratio, the other party has to pay the complete monthly obligation every month for a minimum of 12 months (and the other party cannot be an interested party for non-mortgage debt).
For mortgage debt, the following additional requirements must be met:
- the party making the payments is obligated on the mortgage debt,
- there are no delinquencies in the most recent 12 months, and
- the borrower is not using rental income from the applicable property to qualify.
All other requirements of Debts Paid by Others in B3-6-05, Monthly Debt Obligations must be met."
I've made it no secret on BP that I think the subject to product takes advantage of sellers that aren't savvy. They usually have no idea that they are still on the hook and usually do not understand the ramifications of entering into a sub to agreement. A sub to deal does severely limit the seller's ability to purchase a new home as it does leave the debt in the DTI for some time and is not counted only if the above conditions are met. I hope that answers your question.
You are absolutely correct. And as such, disclosures are highly recommended. Unfortunately, there are those promoting over leveraged Subject Tos using unsophisticated "private lenders" in second position as the source for paying the closing costs and any rehab costs. So called, "Zero down" and "no money out of my pocket". For those who come across and read this, be aware that there are potential legal ramifications doing things that way. You can drive a ferrari (Use Subjet To) but the speed limit (laws) are for everyone. And they are enforced. Get properly trained.
Thanks. The reason why I'm asking is I want to make sure I will disclose all the cons to him as well and help him to understand it. I don't like to trick anyone into anything.