Subject To - Equity and Seller motivation
Member since 2022 · 48 posts · 10 votes
I've been watching YouTube videos, reading, listening to podcasts. A couple of investors said that it was important that homeowners had a certain amount of equity before they make an offer using the subject to finance method. I didn't really understand why as long as the loan was not underwater and they didn't explain it. Why would equity be important when acquiring a house via subject-to?
Also, if I am a homeowner, I can't think of the benefit of selling "sub to". I would think that the bank is still going to hold me responsible for the mortgage and that the mortgage would still count against my debt to income ratio, making it more difficult to get another house. Is there any advantage to selling sub to? Or is it just that people want to get rid of the house so bad they take whatever option is available.
I would never sell a house subject to and put my credit score in the hands of someone else.
If a seller has a very low interest rate and the buyer can pay more than what it is worth and have no realtor commission, so more goes to the sellers pocket.
Subject to has been around for decades. While some have had success doing it, there are reasons subject to has never become a mainstream way to purchase properties.
I've been watching YouTube videos, reading, listening to podcasts. A couple of investors said that it was important that homeowners had a certain amount of equity before they make an offer using the subject to finance method. I didn't really understand why as long as the loan was not underwater and they didn't explain it. Why would equity be important when acquiring a house via subject-to?
Also, if I am a homeowner, I can't think of the benefit of selling "sub to". I would think that the bank is still going to hold me responsible for the mortgage and that the mortgage would still count against my debt to income ratio, making it more difficult to get another house. Is there any advantage to selling sub to? Or is it just that people want to get rid of the house so bad they take whatever option is available.
Subject To benefits a very small group of sellers.
Some people define "benefit" only in monetary terms. But, for instance, someone who has lost their job, probates, someone who has been transferred, needs an immediate sale, it's been a long time on the MLS but hasn't sold, plus properties not up to MLS standards so they won't list well on the MLS, and other of "life's occurrences" are all reasons some people sell on subject to. Is it better that the seller's mortgage gets paid (by someone else) and the property turned into a rental or should the seller simply 'walk away" and stop making payments and the property become vacant ?
I am not advocating nor dispelling the practice. I do them frequently, but I know what I'm looking for. I'm just providing an answer to a question. Total disclosure is essential, however it is often downplayed.
Yes, the seller is at great risk. But, some sellers will take that risk for time & convenience reasons.
The reason it is dangerous for a buyer (yes, foolish & dangerous) to buy a property without equity, using subject to, is simply the DOS. If the Due on Sale is called and there is no equity, the buyer has to bring in thousands of dollars to close when they sell. If they can't sell, it goes to foreclosure and destroys the seller's credit. Upon which occurrence, the buyer can be sued.
Ok, thanks, that's good info. Does this go against any provisions of the loan? Do people usually keep info about the sale from the bank for fear that they will call the loan?
Ok thanks. Sounds complicated, but I see there are people making it work.
I've never even heard of a due on sale clause being called in 17 years in the business.
However, I have seen just a single deal in that same time, where a subject to could have benefited the seller. In that sale, the sellers were elderly, sick, uncollectible, and a hefty upfront payment in exchange for a sub 2 would have actually benefited them more than an outright sale (long story). A default on the mortgage later would have been an acceptable risk in their position and worth the lump sum upfront.
That's one deal in thousands I have witnessed. I have never had a single other opportunity to recommend a sub 2, and probably never will again . They are almost never worth the risk to the seller.