Subject To with a Contractor Lien

3 Replies

Hey Everyone, 

This weekend I met with a potential seller and after discussing his situation it seems as if the best course of action would be to purchase the property subject to the existing debts on the property. 

He is $60k in debt on the house.

$40k is on the mortgage- $375/month

$16k is owed to a contractor - $250/month

He also has $4k in back taxes.  

The house needs about $10k in work to be ready to rent, and it would rent for around $950/month.

The spread between payments and potential rental income seems borderline good enough to pull the trigger, if we can get him to settle for a fairly low payment up front.  His son is living there without a lease and not paying anything, so he needs some cash to get him moved somewhere else.  We discussed something around $5,000.   

This would be my first subject to deal and I'm concerned about the fact that there is not just a mortgage, but a contractor lien and back taxes owed. 

 Also, the spread between rental income and the payments just doesn't seem to give the deal enough upside.  Accounting for expenses, it would cash flow around $100/month.  I'm looking into other options as an exit strategy, like just flipping it. Comps are around $90,000 on the low end, all the way up to $125,000  

I had a good conversation with a bigger player in the area who purchases houses subject to and then owner finances them to buyers without the credit to get a conventional loan.  I'll be talking with him later this week to see if he has any interest in purchasing the deal or partnering on it.  

I know there's a lot here but I'm curious to see what y'all think of this deal. Would you buy it?  Has anyone ever purchased a home subject to both a mortgage and contractor liens?

Any and all input is appreciated


From the numbers perspective this looks like a good deal. What purchase price do you want to offer? 60k to pay off the debt plus additional 5k to relocate the son? Assuming your purchase price is 65k + 10k in rehab and you can refi at 100k, this gives you $25k to cash out. I wouldn't be too worried about the fact that there is a mortgage and a lien on the house because I assume you will pay those off. It might seem scary but deals like these is where opportunities are. Assuming your ARV and rent estimates are correct and there are NO other debts, I would go through with the deal. Just make sure to read the title report to confirm that there are no other liens on the house. Take the cash you make from the house and put it to work on your next deal. You got this!

$60k purchase + $10k rehab + $5k moving expenses = $75k total cost for $950 rent ... not too bad. Go for it. 

Usually in these types of deals, some other hidden expenses comes up, so plan on that, but as long as hidden cost are less than $10k, looks like a decent deal. 

@Tina Tsysh and @Paul Welden

Thanks for your input!  I agree that with a traditional purchase (cash or financed)  this deal definitely makes sense. 

I think I should have been more clear- I am looking to purchase this house "subject to" the existing mortgage and liens.   This means that I would be paying the seller $5k and then assuming his payments on the property. It's definitely a lesser known type of creative financing, and it would be my first time taking this route.  You can read more about it here. I won't be able to qualify for any more bank loans for at least a few more years when I have more equity in my current investments, and I'd rather not tie up that much cash in one deal.