Subject-to help with closing process

[Alec Anderson]

I'm trying to close my first subject-to deal and my title company is unfamiliar with the process. Being that it's my first one I'm not exactly sure how to explain it to them either. My understanding is that the property gets put into a land trust, and then the owners assign me beneficial interest into that land trust. Am I right so far?

The title company is asking me if the warranty deed goes into my name or into the name of the trust. I'm thinking it's the trust but figured I'd ask the experts at BP! 

Is there anyone out there that would care to explain the closing process to me, or help me to get a better understanding?

Thanks,

Alec

[Jon Holdman]

Using a land trust in this situation is a trick to try to hide what you're doing from the lender.  It in no way avoids the due on sale clause.

What should happen is that the transaction, sans the land trust, looks just like an ordinary transaction, with one exception.  That exception is that the warranty deed and title insurance will include an exception for the loan being taken subject to.  Otherwise its the same as any other transaction.

Yes, you absolutely need a disclosure.  Don't in any way try to minimize the risk with the seller.  Your disclosure should say:

• The loan remains in their name and missed payments will affect their credit.  
• The loan may prevent them from getting future loans, especially another mortgage
• If you default on the loan and the property is foreclosed their credit will be wrecked.
• There is nothing short of suing you that they can do if you do wreck their credit.  They have no ability to foreclose or evict.
• And it should say they fully understand the risks of this transaction and agree to accept those risks.

You probably want help from an attorney or someone who's done a transaction like this for that disclosure.

You also want a power of attorney from them for the property so you can deal with anything that might involve them in the future.