Subject-To: What about taxes and insurance?

Question

How are taxes and insurance handled in a Subject-To deal? Most loans include taxes/insurance in the mortgage. Once ownership changes, the new owner would be responsible for taxes/insurance.

Frank Chin · Answer

Todd, a subject too is a sleight of hand transaction behind the back of the bank. All I'm saying is you have to be careful of what you do  to not tip the bank off. You cannot always count on bank employees sitting behind cubicles, snoozing, and not doing their jobs. And nothing prevents the bank from enforcing the "due on sale" if they want to. Not to say that they will.

As far as taxes and insurance, the one thing to make sure of is the mortgagee is the primary insured, and you as the additional insured, if that's what you want to do is to get your own policy. If the insurance agent is doing his job, the mortgagee would have to do it for you, and apply, since under insurance law and practices, you cannot buy insurance for someone else. And to avoid confusion with the insurer, and at the bank, I recommended above you wait till the renewal date of the policy to do this. Otherwise, if there's a hang-up, the new policy is issued before the old one is cancelled and refund received, there won't be enough in the bank escrow account to cover both policies. If you want to do it before renewal, have an endorsement issued on the policy for the additional insured.

I mentioned all of this because sometimes people unaware of all this, buys insurance in his own name as you would normally do, go to a insurance agent that doesn't ask too many questions, send a policy to the bank with the wrong primary insured, hoping snoozing employees would make them safe. All I'm saying is do it the right way, and not count on bank sloppiness and inattention, and not count on the bank to ignore the "due on sale".

Todd J Killian · Answer

First off, the bank doesn't really care about who is listed as long as they are the primary listed on the insurance.  These large banks have thousands of individuals working in cubicles, just hoping to get to the next smoke break or to then end of day.  They are not there looking for notes they can invoke a due on sale upon.   The bank has the money out making money, they want that note paid, not a note stopped for a "due on sale" clause.

You can even go as far as tell them, if I don't pay this, you are going to end up with a foreclosed house.  "I will be working with you, please send all correspondence to me."     And this goes for the 'due on sale' too, if someone tells you they are going to enforce that, tell them you will stop paying the mortgage and they can foreclose.  In many states that takes a very long time.  They will be receiving nothing during that whole foreclosure process.  At that point, they will most likely say "Todd, please keep paying the bill."

Frank Chin · Answer

I'm referencing an article on "subject to" transactions. See: Subject to

Note the section on insurance. If you mess around with the escrow accounts, cancel the old insurance, have the new insurance issued, the bank would want to know what's going on. If you tell them because there's a "subject to" transaction, they can invoke the "due on sale" clause.

So if you send an insurance policy showing you as the insured instead of "Sean", they'll say "hey Todd, who are you?, we still have Sean as the mortgagee". What will you say? In these cases, the less you the bank knows, the better.

Todd J Killian · Answer

You will want to get the insurance changed to your coverage and have the old insurance cancelled.  The mortgage servicer can still pay your bill from that escrow account.  Also, look into having the seller sign that any balance in the escrow account at account close/payoff.  You can send that to them, but you may have to call them to get it actually issued to you.

Frank Chin · Answer

The way mortgages are handled, the bank collects into the escrow account an amount monthly sufficient to pay insurance and taxes. Then the insurance company and the tax authorities would just bill the bank, as that's the billing address they have on file. The tricky part sometimes is when the sub-2 buyer then gets an insurance policy under his name, the bank notices and wants to know who you are. But if you leave things alone, you pay the mortgage, the insurance policy auto renews, no one will know the difference, the bank continues to be billed, and in turn pays the insurance and taxes from the escrow.

I paid off several mortgages in recent years and had to go to the insurance companies and various tax authorities to change the billing address back to me, else they would continue billing the bank. I was told the banks usually don't notify these entities during the payoff process.