Help with a "subject to"

13 Replies

I have a couple who wants to do a subject to deal, but she want to talk to her bank first. Will that automatically bring up the due on sale clause? And what all paperwork would i need in this deal? This is my first deal ever, so all advice would be greatly appreciated.
Originally posted by @Thomas Paige :
I have a couple who wants to do a subject to deal, but she want to talk to her bank first. Will that automatically bring up the due on sale clause? And what all paperwork would i need in this deal? This is my first deal ever, so all advice would be greatly appreciated.

Yes, if the seller talks to the bank it is likely to ruin the Subject To deal. But keep in mind, it is their credit that is at risk in a Subject To. Yes, the bank will bring up the Due on Sale clause. Yes, the seller needs to be informed of the Due on Sale clause and you need a disclosure with the seller's signature stating that they know there is a Due on Sale clause if they do a Subject To. Why not do a Lease Option with a 10 year term or a Wrap, or a Land Contract? There are lots of other ways to do this transaction if the seller doesn't want to do a Sub 2. Call a Title Company and discuss options with the Escrow Department.

don't buy something sub too or wrap or otherwise unless there is significant equity.. at least that's what did when I did mine over the years.. were I saw a lot of people get in trouble is taking on near market value debt.. that's a loser most everytime.

You need to find a local RE attorney. There are disclosures you need. One of them is the seller acknowledging that if you don’t make the payments she is screwed because you have the title, the loan is still in her name and there is nothing she can do about it, among others.

Originally posted by @Wayne Brooks :

You need to find a local RE attorney. There are disclosures you need. One of them is the seller acknowledging that if you don’t make the payments she is screwed because you have the title, the loan is still in her name and there is nothing she can do about it, among others.

I have seen first hand the carnage created by undercapitalized buyer thinking the way to make money is to do these sub too's.. and I have seen a few that do this get in so much trouble they ended up in prison..  and or in deep trouble.. 

Originally posted by Account Closed:
Originally posted by @Thomas Paige:
I have a couple who wants to do a subject to deal, but she want to talk to her bank first. Will that automatically bring up the due on sale clause? And what all paperwork would i need in this deal? This is my first deal ever, so all advice would be greatly appreciated.

Why not do a Lease Option with a 10 year term or a Wrap, or a Land Contract? There are lots of other ways to do this transaction if the seller doesn't want to do a Sub 2. Call a Title Company and discuss options with the Escrow Department.

Those alternatives still violate the due on sale clause. Usually an option, land contract, contract for deed or a lease over three years all violate the due on sale clause.

Originally posted by @Jon Holdman :
Originally posted by @Mike M.:
Originally posted by @Thomas Paige:
I have a couple who wants to do a subject to deal, but she want to talk to her bank first. Will that automatically bring up the due on sale clause? And what all paperwork would i need in this deal? This is my first deal ever, so all advice would be greatly appreciated.

Why not do a Lease Option with a 10 year term or a Wrap, or a Land Contract? There are lots of other ways to do this transaction if the seller doesn't want to do a Sub 2. Call a Title Company and discuss options with the Escrow Department.

Those alternatives still violate the due on sale clause.  Usually an option, land contract, contract for deed or a lease over three years all violate the due on sale clause.

I think folks need to understand what Alienation of title means.. that will help them determine if a loan can be called..  

Originally posted by @Jon Holdman :
Originally posted by @Mike M.:
Originally posted by @Thomas Paige:
I have a couple who wants to do a subject to deal, but she want to talk to her bank first. Will that automatically bring up the due on sale clause? And what all paperwork would i need in this deal? This is my first deal ever, so all advice would be greatly appreciated.

Why not do a Lease Option with a 10 year term or a Wrap, or a Land Contract? There are lots of other ways to do this transaction if the seller doesn't want to do a Sub 2. Call a Title Company and discuss options with the Escrow Department.

Those alternatives still violate the due on sale clause.  Usually an option, land contract, contract for deed or a lease over three years all violate the due on sale clause.

Yes, those methods violate the Due on Sale clause but they aren't as obvious to the bank as Subject To is, which is what the OP was concerned about. More importantly, the seller needs to KNOW (in writing, signed by the seller in front of an attorney, in my opinion) that the due on sale clause has a potential of being exercised by the bank. Nothing illegal is being done, it is just breaking the contract and the bank "has the option" not the requirement to exercise the option. Subject To, Wraps, Land Contracts and Lease Options all have different implications to the seller and to the buyer. Be careful not to conflate the differences.

The seller needs to make that decision knowingly. A Lease Option doesn't violate the DOS until the Option is Exercised.

Originally posted by Account Closed:

A Lease Option doesn't violate the DOS until the Option is Exercised.

With the standard verbiage an option violates the DOS clause as soon as the option is sold. The only way to know for certain is to read the actual note.

Originally posted by @Jon Holdman :
Originally posted by @Mike M.:

A Lease Option doesn't violate the DOS until the Option is Exercised.

With the standard verbiage an option violates the DOS clause as soon as the option is sold. The only way to know for certain is to read the actual note.

 That isn't how the judge ruled when I took it to court.