Subject to Deals
Member since 2023 · 5 posts · 2 votes
Subject to Deals
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@Christopher Schray Your main question is not based in fact… the mortgage is still backed by the property. It remains a lien that can be foreclosed regardless of the fact that ownership of the land has changed.
Why would a lender not call the loan and/or foreclose under these circumstances? Because there is no guarantee that the lender would be made whole by doing so. Getting a payoff via refi or resale without the distress element may be a better course of action.
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- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Subject to only works when the seller is in distress. Typically there is a reinstatement, and the seller can not afford to keep up with payments. It benefits the seller because they don’t have to foreclose, it benefits the buyer because they get a good deal, it benefits, the bank, because they don’t have to foreclose.
- 3yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
I am going to get hammered for this post, but I agree with you. I have been a lending exec for 32 years...both with banks and mortgage companies. I say that to ward off people saying that I just don't understand it. I do. Here's the issue. When a lender/bank makes a loan decision, it's made to a specific individual and it's based on those character and capacity virtues that we've tried and tested over decades to come up with a decision as to the likihood of default. Let's say someone comes to us and says "I've never paid back a loan I've been given in my life". We'll likely say no to the loan. Outside of vulture lenders, we don't want the property back. We want the customer to pay back their loan. Then that person goes to a friend with great credit and income and convinces them to approach us. After carefully undewriting the the loan, we approve it and close. Then, behind our backs, our borrower transfers title quietly without informing us to the first person in our scenario. That's pretty much mortgage fraud. Now, if a person that is wanting to purchase via sub-to gets the lender's permission, then great. If, however, it's done with the intent to deceive, that's not kosher. I see it touted on here all the time and it really irks me. Gurus charge thousands of dollars to teach people how to skirt the system. If you've got to sneak around on a lender because "they'll never find out", doesn't that sound wrong? Will the lender call the loan on a sub-to? Probably not. Servicers are paid by lenders to send out statements and collect payments. If they call the loan, those payments on that loan stop, but the lender might feel differently if they new. Lenders get busy and miss things. That's what the gurus that tout it are counting on and they are selling the fact that "the bank will never know". Here's the point where the lender/servicer does find out...the taxes and insurance. Every year, the servicer receives the insurance dec page showing the property owner. They also make sure with the county taxing authorities that the taxes are being paid so the property isn't sold via tax sale. That's where lenders find out about the sub-to quit claim deed. I'm sorry, but I take a contra view on this popular program. A contract for deed or a purchase option is legit. Sub-to, however, I take issue with. You can't get a little bit pregnant...either you are or you're not. If you have to hide an activity from someone, you have to ask yourself why. You're questions are quite valid.
- Chambersburg · Member since 2023 · 15 posts · 3 votes3y
I`m no expert on Subto as I`ve only recently started studying it as well. The due on sale clause can be triggered by a few different things and can be circumvented by transferring the deed back to the seller and purchasing through a lease option, where the option is the mortgage balance the day of execution.
The benefit of the seller is they can get from under a mortgage that may be hurting them financially or messing with their Debt to Income ratio if they were looking to by another property. There are third party servicers you can also use that make sure your payments go directly to the seller and everything stays documented, which the seller can also use to have the DTI lowered after a certain amount of time. There`s also a way to provide more security to the seller by getting them back the asset if you happened to default without the negative impact on their credit.
I`m no expert with my fragmented knowledge so take this with a grain of salt and do more research before attempting a deal. Anyone else please feel free to correct me.
@Christopher Schray Your main question is not based in fact… the mortgage is still backed by the property. It remains a lien that can be foreclosed regardless of the fact that ownership of the land has changed.
Why would a lender not call the loan and/or foreclose under these circumstances? Because there is no guarantee that the lender would be made whole by doing so. Getting a payoff via refi or resale without the distress element may be a better course of action.
Gimer Law516 Reviews- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes3y
@Christopher Schray, I agree with @Tom Gimer.
You get title to the property, but the loan and lien stay in place. The lender is very very unlikely to invoke the "due on sale" clause calling the mortgage due so long as it is being paid mainly because they generally lose money when they need to foreclose and they would rather keep getting paid and make money.
The loan is in the seller's name but YOU the buyer are responsible for it because if unpaid you lose the property to foreclosure.
Also correct were other responders who said that only a distressed seller facing foreclosure would be likely to accept a subject-to deal. It brings their mortgage current and with the buyer making future mortgage payments it not only avoids a foreclosure on their credit but with timely payments made could help build their credit back up.
- Member since 2023 · 5 posts · 7 votes3y
Listen to the podcast episode with Pace Morby. He answers your questions.
- Real Estate Coach · Riverside County, CA · Member since 2017 · 238 posts · 157 votes3y
Quote from @David Paull:
Listen to the podcast episode with Pace Morby. He answers your questions.
uggh... it isn't as easy as its made out to be.. I've done 3 subject too in 10 years, never came close to note being called due, if the lender is being paid, they didn't care who was paying it each month. I had my bank account set up for auto payments for 5 years on a rental we had subject too, no issues. Not saying they couldn't, but we didn't. Biggest challenge/reservation I've seen (from seller) "what if I want to buy another house in 2 years and my current mortgage is still outstanding on a house a don't own"....
- Member since 2023 · 5 posts · 2 votes3y
Quote from @Tom Gimer:
@Christopher Schray Your main question is not based in fact… the mortgage is still backed by the property. It remains a lien that can be foreclosed regardless of the fact that ownership of the land has changed.
Why would a lender not call the loan and/or foreclose under these circumstances? Because there is no guarantee that the lender would be made whole by doing so. Getting a payoff via refi or resale without the distress element may be a better course of action.
Thank you everyone for the response. I have some follow up questions.
So if I stopped paying, they will foreclose on me and not the seller?
Also, do I pay the lender directly or do I pay the seller and the seller pays the lender? If so, what happens if the seller stops paying?
Pretty much everyone I talked to said the loan has to be assumed. If I don't qualify for the loan, the bank will call the loan.Is that true??
Thank you
- Real Estate Coach · Riverside County, CA · Member since 2017 · 238 posts · 157 votes3y
Quote from @Christopher Schray:
Quote from @Tom Gimer:
@Christopher Schray Your main question is not based in fact… the mortgage is still backed by the property. It remains a lien that can be foreclosed regardless of the fact that ownership of the land has changed.
Why would a lender not call the loan and/or foreclose under these circumstances? Because there is no guarantee that the lender would be made whole by doing so. Getting a payoff via refi or resale without the distress element may be a better course of action.
Thank you everyone for the response. I have some follow up questions.
So if I stopped paying, they will foreclose on me and not the seller?
Also, do I pay the lender directly or do I pay the seller and the seller pays the lender? If so, what happens if the seller stops paying?
Pretty much everyone I talked to said the loan has to be assumed. If I don't qualify for the loan, the bank will call the loan.Is that true??
Thank you
The lender forecloses, it affects the borrowers credit, not your, but you would lose the house. So it affects both of you.
You need to get access to the online payment account for the mortgage so you can put in your bank details for direct deposit. If you pay the seller, what if they don't pay the loan? sure its in his interest to not go into foreclosure, but you need to pay it yourself. People who say you "have to assume" are not wrong from a legal stand point, but that doesn't help. the whole idea of subject too is to NOT use your credit... assuming the loan can make sense if the interest rate is awesome compared to what we see today, but doesn't always work, that's a different scenario though.
If the lender forecloses on a property transferred subject-to, the new owner would be a named defendant in the FC action and that could affect credit… check underwriting guidelines. Of course the seller’s credit gets trashed with or without a deficiency judgment.
Gimer Law516 Reviews- Kansas City, Jackson County · Member since 2020 · 1 post · 0 votes3y
I got a question, Can I call your credit card company, and with your obvious permission and account number, can I make a payment on your behalf? Of course, I can. As long as the monthly payments are being made, the credit card company could care less where the funds came from. So do you think that bank really cares who is paying them? Are they going to go out and investigate every loan? They are paid, everyone is happy and no one is being ripped off. This is an opinion, not legal advice.
- Member since 2023 · 5 posts · 2 votes3y
Ohh I get it now. So let me recap and clear it up.
I transfer the deed
make payments on behalf of the seller by basically changing the payment method from their bank to by bank. And to do that, I just get the payment information and switch it over to my account.
and wait until its paid off.
Let me know if I miss something.
Thank you again everyone!!
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