First Sub-To Deal - LOC Debt, Leaseback, and Buyback. Worth Doing or Hard Pass?

Question

Hey everyone — looking for some feedback on a potential Sub-to deal (would be my first one).
I’ve never once gone out of my way to look for a sub-to deal, and in most cases I honestly don’t think they make much sense for the seller. But I recently referred a seller to an agent that has had a tough time getting the house even listed because the sellers can't find another place to live.
Here are the details:

• Seller’s biggest hurdle is she has nowhere to go(and would prefer not to). Shot credit + four large dogs = very difficult to find a rental
• She filed for bankruptcy earlier this year (recently dismissed after she avoided the tax sale).
• She originally owned the house free and clear, but when her husband lost his job she tapped equity through a line of credit and fell behind.
• Line of credit was ~$120k, she’s $8k in arrears, so payoff is roughly $128k.
• She’s behind on taxes (~$12k).
• She also owes friends/family another $20k.
• So roughly $160k needed to make her whole.

Condition-wise:
Agent says the house is actually in decent shape — just beat up from the dogs. Paint, trim, carpets. Otherwise solid. As-is ARV is probably around $250k.
Originally I told her she should list it and get top dollar. But again, the “nowhere to go” problem kept coming up. After revisiting this with her and the agent, the seller surprisingly loved the idea of:

• Me taking over payments (sub-to the line of credit)
• Getting her caught up and paying off the tax delinquency + personal debts
• Doing a leaseback
• Giving her a 24-month option to purchase back

Numbers we discussed (not final):

• Purchase price: $165,000 (enough for her to clear everything)
• Option to repurchase at: $225,000 in 24 months
• Current payment on the LOC: $700/mo (it's adjustable and she said its been as high as $900 before but lowered due to hardship??)
• Taxes: ~$275/mo
• Expected insurance: ~$85/mo
• She believes she can comfortably afford $1,300/mo, but realistically I think this needs to be closer to $1,600 to make sense(in case loan gets called due and I have to get a new loan with principal and interest around $1,100)

My concerns/questions:

• The underlying debt is a line of credit, not a traditional mortgage. My understanding is that LOCs are much more likely to get called due.
• I’ve also read that doing these in a trust (with my LLC as beneficiary) reduces the odds of triggering a DOS clause.
• I’d need to bring around $45k to the table(would likely bring on an equity partner to fund it and split cash flow and profit at end of deal)
• Looking for feedback on whether this is actually worth doing vs. just passing.
• Anyone have Pennsylvania licensed attorneys who are experienced in sub-to or creative structures?

Not trying to force a sub-to into existence, I just think this might be one of the rare cases where it gives the seller a path to stay in her home, clean up her situation, and eventually buy it back. But I want to do it right and not take on unnecessary risk.
Would appreciate any thoughts, warnings, or recommendations.

Jay Hinrichs · Answer

did not read the whole thing but LOC can be and are called all the time..

So if it was my deal that loan would need to be paid in full at close and retired so they could not access it again.

Bill Goodland · Answer

@James Jones thanks for the detailed breakdown. I think it's likely too much risk given it's a LOC. Will probably just give her my cash option

James Jones · Answer

Hey Bill, appreciate the detailed breakdown. I’ll give you the perspective of someone who’s done a lot of creative deals but also learned to avoid unnecessary risk. There are rare situations where sub-to can solve a real hardship, but this one has a couple structural red flags that you need to take seriously.

1. The fact that this is a line of credit is the biggest problem.

LOCs get called due far more often than a traditional mortgage, especially when the underlying borrower changes occupancy, insurance changes, or the lender senses instability. That alone makes this a high-risk sub-to. If the lender calls it due mid-deal, you’re immediately forced into a refinance at whatever the market rate is at that moment.

2. You’re also layering in a leaseback and an option to repurchase.

Those structures help the seller, but they increase your exposure. If anything goes wrong (non-payment, pets damaging the home again, bankruptcy complications), you’re stuck with a high-touch situation and a tenant-buyer who knows the system very well. Leasebacks can get messy fast if the resident doesn’t truly stabilize.

3. You’re bringing ~$45K to the table on a deal where your downside risk is higher than normal.

Between the LOC risk, arrears, taxes, and personal debts, you’d be injecting capital to rescue the seller, but without the security you’d normally get in return. If she defaults on the leaseback or exercise option, you’re inheriting a very hairy situation you didn’t create.

4. Trust structure does not eliminate DOS risk on a line of credit.

The “trust” workaround is primarily discussed in the context of mortgages, and even then it’s not bulletproof. LOCs are a lot less tolerant. You need an attorney who has specifically structured deals around lines of credit, or you’ll be relying on internet folklore.

5. You’re taking on a heavy lift for a project where the seller is emotionally attached, financially stressed, and highly unstable.

That usually means future drama. Sellers in hardship rarely glide smoothly through a 24-month option period.

My take:

You’re trying to help, and your heart is in the right place, but the underlying debt structure alone makes this a deal I would not touch unless:

• The LOC is fully refinanced into a traditional mortgage before you take title

and

• You structure it as a clean acquisition with a simple leaseback without an option to repurchase

Otherwise, you’re carrying most of the risk with very little guaranteed return.

Sometimes the best service you can provide a seller is helping them list the home, clean up the situation, and move on, not trying to engineer a creative structure just because it’s technically possible.

You’re asking all the right questions. The fact that you’re hesitating is a good sign. A lot of experienced investors would pass on this exact setup.

Jay Hinrichs · Answer

PS I did well over 150 foreclosure lease back give owner right to buy it back exactly 2 did that in the 12 years I was active doing these before they basically became illegal on the West coast

First Sub-To Deal - LOC Debt, Leaseback, and Buyback. Worth Doing or Hard Pass?

First Sub-To Deal - LOC Debt, Leaseback, and Buyback. Worth Doing or Hard Pass?

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