Pro Tip on Subject To - Subto

[Ken M.]

If you are considering buying using Subject To - Subto, it's important to know what your exit strategy is.

Talk to a mortgage broker (not a bank) and ask if that is a property you will be able to get financing on in the event you have to refinance quickly, because the Due On Sale clause was called.

And

Talk to a real estate agent about how much you would have to bring to closing in the event you had to sell quickly. Generally, it's 8% to 10% of the sales price to sell a property. For a $300,000 property it could be $30,000.

Then, do you have that much cash or credit available to you, in the event of a Due on Sale call?

[Ken M.]

Quote from @Kyle Mccaw:

@Ken M.  Thank you for your post. I have some questions that you may have the answers for. 

How many Due on Sale clauses have you actually seen enforced?

Are there specific lenders or servicers that are more likely to call these loans?

When loans were called, was it due to specific triggers like delinquencies, insurance lapses, or low-interest rate portfolio loans held by smaller banks?

The guy on Youtube that boasts about buying properties with no money out of his pocket and using other people's money from his "community" to pay for closing and carrying costs, said in a video in June that he had 10 Due on Sale called in AZ alone from Jan 2024 to May 2024. He didn't elaborate if there were others or which states. I don't really follow him, so I'm not sure how many have been called since or if he would actually state if he had. He uses poorly thought through methods, I've listened to his "methods",  Thus, he has the high amount of  Due On Sale called in a short period of time. 

We stay away from doing things like he does them.

I've only had 2 called in 30 years. The first, 16 or 17 years ago, was called 6 years after I bought the property. During that time the property had appreciated significantly and the seller was attempting a "shake down" to regain the property or get the appreciation, which he lost. His argument was that if he had not sold, he would have gotten that equity. Not a strong argument ;-) I still had to pay off the loan to cure the DOS. The second DOS was in 2020 when I bought enough properties using "subject to" that I couldn't keep up with rehabbing and some sat for a couple of months. One was taken over by some squatters causing problems for the neighbors and the police were contacted who contacted the lender. I paid off the loan to cure the DOS.

There are a couple of "subto's gone bad" over in the creative finance forum.