Subject-to's and foreclosure

9 Replies

I want to see if the scenario in my head makes practical sense. I'm in Connecticut but any advice or feedback is appreciated.

If someone is in the foreclosure process, could I purchase their home subject to the existing financing? I know I'd have to pay whatever the bank would require to get it out of foreclosure, then beyond that take over the payments on their existing mortgage using a 3rd party to handle any payments that may need to be split.

I think I'm simplifying here since we'd also have questions about insurance, taxes, etc... However, for the sake of just purchasing the home - can/should that be done?

@Hattie Dizmond  I mentioned the 3rd party as a way to handle payments for me.  I wouldn't trust the owner to pay anything like the mortgage on my behalf.  I guess I could pay things myself.

I'm going to listen to podcast 31 a little later tonight, thanks.

You need to get approval from the bank to assume their loan, and if you just go the subject2 route, the lender could call the note due base on the due on sale clause.

Joe Gore

@Shvonne C.  

Maybe it's just a miscommunication.  However, if you're going to do a Sub-2 purchase, you wouldn't normally leave the original owner in the property.  That's just inviting all sorts of problems.  You would, typically, either just rent the property to a new tenant, at which point they pay you rent and you make the mortgage payments.  Alternately, you could do a lease purchase type of transactions...whether straight lease purchase, right of first refusal, etc....or an owner financed sell, where the Sub-2 mortgage remains in place for a period of time.  Regardless, in anything other than a straight lease, I would encourage you to use an RMLO for vetting the buyer and avoiding all the Dodd-Frank/Safe Act issues.  In that case, the RMLO can also service the loan or you are getting the rent/mortgage payment and making the bank payment on the Sub-2 mortgage yourself. 

I wish you the very best on your deal but be caution on Gurus who tell you a lender will not excise their rights to call the note due.

Joe Gore

Thanks @Hattie Dizmond  it might have been misinformation on my part.

Thanks @Joe Gore for the info on calling the loan due in full.  From what I understand the vast majority of mortgages have that clause in them.  Have you had experience with this?  Does the lender usually call  the note due?  I would assume it would probably depend on who the mortgage is with and whether they care or just want their money but curious.

@Shvonne C.  Lenders can call a note due.  It is their legal right to do so, and no one can guarantee you that won't happen.  You have to ensure your seller is fully informed and has signed informed consent documents.  With that said, lenders typically don't want to turn performing assets into non-performing assets.  They don't want to own property.  They already own hundreds of millions of dollars in properties they are trying to liquidate.  It isn't their business model.  There are plenty of folks on this site who have done hundreds of subject to deals without ever having one called. 

To also reiterate what Hattie stated, Banks don't want to call a note due, WHY? In your scenario, you have taken over a loan and are going to pay them the interest on the note now. That is what they ar in the lending business for! They have plenty of non performing loans to deal with....

If the note is called, couldn't you just finance it with another bank or just buy the property from the seller for the loan amount due?

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here