Using Subject To, to Get "Free" Properties - A Quick Guideline

Using Subject To, to Get "Free" Properties - A Quick Guideline

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

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.

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Professional · Raleigh, NC · Member since 2016 · 126 posts · 123 votes
3y
Quote from @Matt Burr:

How do you handle number 5 with the insurance?

The downside I am trying to find a way around is how to insure correctly without the bank getting notified of the change in owner. 


1 - get a POA from the seller so you can handle it, and get in writing from the seller that in such a case you get the proceeds.  When the check comes however, they will still have to sign it over.

2 - Contact NREIG.  They know how to properly insure sub to deals to protect everyone.

https://nreig.com/insure-subje...
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Tom Gimer:
    Quote from @Jay Hinrichs:
    Quote from @Tom Gimer:

    Can't some fool jump in here with a quick "Pace Morby is the best thing that ever happened to me" comment to lighten things up?


    Tom Coming to Baltimore tomorrow you in town ?

    Yes -- if I can help in any way or just want to meet up let me know.

    sent you an e mail.
  • Investor · Fresno, CA · Member since 2016 · 1 post · 0 votes
    2y

    While it's true that the points raised  by the OP are valid, many of the issues listed can be avoided. Buying a house "subject to" isn't a new strategy in real estate investing—it can either be a boon or a bane depending on how well you've done your homework. Due diligence is crucial in any business venture, and skipping it can land you in more legal failures than successes, especially with subto deals. Whether it's a traditional sale or a subto transaction, no real estate deal is solid. Its success hinges on the honesty and reliability of each party involved. So, if you're dealing with flaky sellers or shady partners looking for quick wins, it's wise to heed the OPs words. Educate yourself and team up with a professional.

  • Jami LynnPro Member
    Browns Mills, NJ · Member since 2017 · 18 posts · 4 votes
    2y

    Where's your picture? I want to see if you are a white person putting yourself out there for minorities like I am.

    I do want to thank you for presenting me with the opportunity to again issue my warning as the first statement. ;-)

    You openly asked for a picture, then pretended you had no idea why I posted a picture. Sounds about right for you.

    And for a guy who openly said "minorities are always the ones I have problems with" when selling them homes, I don't think huffing and puffing about "defamation" is a good look.

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