Buying property "subject to" vs. Adding someone to the mortgage/deed

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Buying property "subject to" vs. Adding someone to the mortgage/deed

Michael Sand
Member since 2024 · 4 posts · 0 votes

Hello,

I'm in a situation where my brother is looking to get rid of his house entirely, and I am looking to acquire it from him. The house is particularly appealing to me due to the low mortgage rate that he got in 2020.

My question is whether I should buy his property "subject to" or add myself to the mortgage/deed. The mortgage is not transferrable, but we think that if I'm added to the mortgage and the deed, it will be effectively the same. This is of course assuming that I can trust my brother at his word... which I 100% do, that the house will become mine, even though he will still be on the deed and the mortgage.

What are the pros/cons of either strategy? From my understanding, the only real concern with taking the latter approach is if the other person on the mortgage/deed is someone that you could potentially not trust. Subject to seems to be more ideal to avoid any confusion over ownership, but it sounds like a pretty involved process that could cost time and money (whereas the other approach is free and simple).

Any insights/advice would be appreciated!

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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
2y

I am assuming the bank will add you to the mortgage and the deed, only if your brother is still on both. I would do that and have a separate agreement signed with your brother that he relinquishes any equitable interest in the house. Have an attorney draw up the agreement, but that doesn't get recorded, it just goes in your personal files. That seems like the best way to do it. You will still have to have record of the agreed upon transfer price for your tax basis, but talk with a cpa. 

Another way of doing it is your brother putting the property in a title-holding land trust and then transferring the equitable interest to you. The title only shows the name of the land trust and he can name it 123 main st or put it in his name, and the details of the trust agreement are not recorded, so it essentially shields the equitable interest title from appearing to have been transferred. So, the title will show the trust but the trust docs will show the agreement that you are sole owner. Now, this still technically violates the due-on-sale clause, but it isn't likely to arouse suspicion. 

Many years ago, there was someone that had a technique of doing this which didn't violate the due-on-sale. Basically, if I remember correctly, they would put it in a land trust, than have the trust agreement tfr 90% ownership interest to the buyer, while allowing the seller to keep 10%, but the agreement had that 10% revert back to the buyer upon a future sale, or something similar to that. 

But, as always, don't listen to any of us on the interwebs without doing thorough research and consulting with local professionals.

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  • Michael Sand
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Account Closed:
    Quote from @Michael Sand:

    Hello,

    I'm in a situation where my brother is looking to get rid of his house entirely, and I am looking to acquire it from him. The house is particularly appealing to me due to the low mortgage rate that he got in 2020.

    My question is whether I should buy his property "subject to" or add myself to the mortgage/deed. The mortgage is not transferrable, but we think that if I'm added to the mortgage and the deed, it will be effectively the same. This is of course assuming that I can trust my brother at his word... which I 100% do, that the house will become mine, even though he will still be on the deed and the mortgage.

    What are the pros/cons of either strategy? From my understanding, the only real concern with taking the latter approach is if the other person on the mortgage/deed is someone that you could potentially not trust. Subject to seems to be more ideal to avoid any confusion over ownership, but it sounds like a pretty involved process that could cost time and money (whereas the other approach is free and simple).

    Any insights/advice would be appreciated!

    You can not just "add" yourself to a mortgage. That is a legal document that the lender needs to be involved in. 
    If you take over the mortgage using what is commonly called "subto", or "subject to", or "taking over the mortgage" by some, the risk you run is the due on sale clause. When title transfers, the lender has the right to require that the loan be paid off entirely. That does not mean that they always exercise that right. In the event they do require the loan to be paid off entirely, they issue a demand letter that gives you 30 days befor ethey begin a foreclosure. Please be aware that a popular video on youtube purports to provide a way to skirt the Due On Sale. It is not a valid solution. Just be prepared to pay off the loan if the note is called.

    Well yeah, I've talked to the lender and they have already given the thumbs up for adding me to the mortgage so that's not a concern.

    Thanks for the point you made on subto. I was already leaning towards not doing subto, so that gives me more confirmation in my decision!

    0Reply
  • Sunil Kapoor
    Member since 2018 · 21 posts · 6 votes
    2y
    Quote from @Michael Sand:
    Quote from @Account Closed:
    Quote from @Michael Sand:

    Hello,

    I'm in a situation where my brother is looking to get rid of his house entirely, and I am looking to acquire it from him. The house is particularly appealing to me due to the low mortgage rate that he got in 2020.

    My question is whether I should buy his property "subject to" or add myself to the mortgage/deed. The mortgage is not transferrable, but we think that if I'm added to the mortgage and the deed, it will be effectively the same. This is of course assuming that I can trust my brother at his word... which I 100% do, that the house will become mine, even though he will still be on the deed and the mortgage.

    What are the pros/cons of either strategy? From my understanding, the only real concern with taking the latter approach is if the other person on the mortgage/deed is someone that you could potentially not trust. Subject to seems to be more ideal to avoid any confusion over ownership, but it sounds like a pretty involved process that could cost time and money (whereas the other approach is free and simple).

    Any insights/advice would be appreciated!

    You can not just "add" yourself to a mortgage. That is a legal document that the lender needs to be involved in. 
    If you take over the mortgage using what is commonly called "subto", or "subject to", or "taking over the mortgage" by some, the risk you run is the due on sale clause. When title transfers, the lender has the right to require that the loan be paid off entirely. That does not mean that they always exercise that right. In the event they do require the loan to be paid off entirely, they issue a demand letter that gives you 30 days befor ethey begin a foreclosure. Please be aware that a popular video on youtube purports to provide a way to skirt the Due On Sale. It is not a valid solution. Just be prepared to pay off the loan if the note is called.

    Well yeah, I've talked to the lender and they have already given the thumbs up for adding me to the mortgage so that's not a concern.

    Thanks for the point you made on subto. I was already leaning towards not doing subto, so that gives me more confirmation in my decision!


     I would personally go the Subto route, because you will never get a mortgage interest rate like your brother received on this property for the foreseeable future.  This might reduce your payment by half!  Also, by getting a new mortgage, you will essentially make money for the banks.

    If the bank is willing to add your name to the mortgage, then I would definitely pursue this option.  From a tax perspective, your brother and you both can't claim the interest benefits.  You can view Pace Morby's videos as he is big into this strategy.

    0Reply
  • Michael Sand
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Account Closed:
    Quote from @Michael Sand:
    Quote from @Account Closed:
    Quote from @Michael Sand:

    Hello,

    I'm in a situation where my brother is looking to get rid of his house entirely, and I am looking to acquire it from him. The house is particularly appealing to me due to the low mortgage rate that he got in 2020.

    My question is whether I should buy his property "subject to" or add myself to the mortgage/deed. The mortgage is not transferrable, but we think that if I'm added to the mortgage and the deed, it will be effectively the same. This is of course assuming that I can trust my brother at his word... which I 100% do, that the house will become mine, even though he will still be on the deed and the mortgage.

    What are the pros/cons of either strategy? From my understanding, the only real concern with taking the latter approach is if the other person on the mortgage/deed is someone that you could potentially not trust. Subject to seems to be more ideal to avoid any confusion over ownership, but it sounds like a pretty involved process that could cost time and money (whereas the other approach is free and simple).

    Any insights/advice would be appreciated!

    You can not just "add" yourself to a mortgage. That is a legal document that the lender needs to be involved in. 
    If you take over the mortgage using what is commonly called "subto", or "subject to", or "taking over the mortgage" by some, the risk you run is the due on sale clause. When title transfers, the lender has the right to require that the loan be paid off entirely. That does not mean that they always exercise that right. In the event they do require the loan to be paid off entirely, they issue a demand letter that gives you 30 days befor ethey begin a foreclosure. Please be aware that a popular video on youtube purports to provide a way to skirt the Due On Sale. It is not a valid solution. Just be prepared to pay off the loan if the note is called.

    Well yeah, I've talked to the lender and they have already given the thumbs up for adding me to the mortgage so that's not a concern.

    Thanks for the point you made on subto. I was already leaning towards not doing subto, so that gives me more confirmation in my decision!

    Congratulations. The other thing to consider is the tax implications.

     Do the tax benefits have to be split between myself and my brother or could I claim all of them (assuming he's on the same page with it obviously)?

    0Reply
  • Michael Sand
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Sunil Kapoor:
    Quote from @Michael Sand:
    Quote from @Account Closed:
    Quote from @Michael Sand:

    Hello,

    I'm in a situation where my brother is looking to get rid of his house entirely, and I am looking to acquire it from him. The house is particularly appealing to me due to the low mortgage rate that he got in 2020.

    My question is whether I should buy his property "subject to" or add myself to the mortgage/deed. The mortgage is not transferrable, but we think that if I'm added to the mortgage and the deed, it will be effectively the same. This is of course assuming that I can trust my brother at his word... which I 100% do, that the house will become mine, even though he will still be on the deed and the mortgage.

    What are the pros/cons of either strategy? From my understanding, the only real concern with taking the latter approach is if the other person on the mortgage/deed is someone that you could potentially not trust. Subject to seems to be more ideal to avoid any confusion over ownership, but it sounds like a pretty involved process that could cost time and money (whereas the other approach is free and simple).

    Any insights/advice would be appreciated!

    You can not just "add" yourself to a mortgage. That is a legal document that the lender needs to be involved in. 
    If you take over the mortgage using what is commonly called "subto", or "subject to", or "taking over the mortgage" by some, the risk you run is the due on sale clause. When title transfers, the lender has the right to require that the loan be paid off entirely. That does not mean that they always exercise that right. In the event they do require the loan to be paid off entirely, they issue a demand letter that gives you 30 days befor ethey begin a foreclosure. Please be aware that a popular video on youtube purports to provide a way to skirt the Due On Sale. It is not a valid solution. Just be prepared to pay off the loan if the note is called.

    Well yeah, I've talked to the lender and they have already given the thumbs up for adding me to the mortgage so that's not a concern.

    Thanks for the point you made on subto. I was already leaning towards not doing subto, so that gives me more confirmation in my decision!


     I would personally go the Subto route, because you will never get a mortgage interest rate like your brother received on this property for the foreseeable future.  This might reduce your payment by half!  Also, by getting a new mortgage, you will essentially make money for the banks.

    If the bank is willing to add your name to the mortgage, then I would definitely pursue this option.  From a tax perspective, your brother and you both can't claim the interest benefits.  You can view Pace Morby's videos as he is big into this strategy.


     Yes, the bank is willing to add my name to the mortage - I agree about the mortgage rates. I will have to look into those videos, thanks for the response!

    0Reply
  • Brad S.
    Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
    2y

    I am assuming the bank will add you to the mortgage and the deed, only if your brother is still on both. I would do that and have a separate agreement signed with your brother that he relinquishes any equitable interest in the house. Have an attorney draw up the agreement, but that doesn't get recorded, it just goes in your personal files. That seems like the best way to do it. You will still have to have record of the agreed upon transfer price for your tax basis, but talk with a cpa. 

    Another way of doing it is your brother putting the property in a title-holding land trust and then transferring the equitable interest to you. The title only shows the name of the land trust and he can name it 123 main st or put it in his name, and the details of the trust agreement are not recorded, so it essentially shields the equitable interest title from appearing to have been transferred. So, the title will show the trust but the trust docs will show the agreement that you are sole owner. Now, this still technically violates the due-on-sale clause, but it isn't likely to arouse suspicion. 

    Many years ago, there was someone that had a technique of doing this which didn't violate the due-on-sale. Basically, if I remember correctly, they would put it in a land trust, than have the trust agreement tfr 90% ownership interest to the buyer, while allowing the seller to keep 10%, but the agreement had that 10% revert back to the buyer upon a future sale, or something similar to that. 

    But, as always, don't listen to any of us on the interwebs without doing thorough research and consulting with local professionals.

    1Reply
  • Nicholas Fazio
    Member since 2019 · 30 posts · 8 votes
    2y

    @Brad S.

    Very interesting!

    0Reply
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