Using Subject To, to Get "Free" Properties - A Quick Guideline
I often buy using Subject To to buy properties. If you choose to use this technique these are some of the Pitfalls to watch out for.
Subject To Pitfalls
1. The bank can call the loan due (due on sale cause).
2. You need money to do a "no money down" Subject To. The seller needs moving money, there are oftentimes an arrears that has to be paid on the loan, there are oftentimes HOA fees that are due, there are title costs, there are escrow costs, usually there is deferred maintenance, you have to make mortgage payments out of pocket until you get a renter in there, you have to pay utilities and taxes, and you need reserves in case it all doesn't go as planned.
3. You can really mess up the seller's credit if you miss payments and they can then sue you.
4. If the seller files bankruptcy in the future you have to prove to the court that you bought the house fairly. That means you have to hire an attorney with uncertain outcomes.
5. If there is a fire and you haven't set up your insurance properly you could be in for a big surprise and not receive a payout.
6. A common source of Subject To deals is people in distress (foreclosure) who have a pending sale date. If you promise them a "rescue" and you don't get it done before the foreclosure sale they can sue you and the local authorities can investigate you.
7. In many jurisdictions (Washington, Oregon, California & others) it is unlawful to contact people in foreclosure unless you are an attorney or real estate gent.
8. If you miss payments on the underlying loan you can go to jail after a very unpleasant investigation.
9. The seller can come back in a year or two and say the sale was unfair and they were taken advantage of and an attorney will believe them and sue you.
10. You can use a Quit Claim Deed and that can be rejected when you go to sell the property.
11. The seller can disappear from contact over time and not be available when you go to sell - you need their assistance oftentimes depending on the lender.
12. You can't contact the lender directly, they won't talk to you.
13. The payment can change and you won't be notified.
14. You can find out later that there was someone else on title that you weren't told about until you get sued.
15. Of course there are more Pitfalls. Did you think this was easy? ;-)
There are solutions for all of these but that is a conversation for later.
