Sub2 Deal- From an Agent Prespective

[Matthew Morrow]

Hi All

We have a client wishing to utilize a sub2 strategy for several purchased in our market. Fantastic idea and even better deal if we can find a seller willing to cooperate. What is everyone's experience with this regarding the due on sale clause once lenders are notified? Or have you had any experience with this where they either 1- don't care, or 2- continue but call the loan due. 
Broker is engaged, just looking for some real world feedback from a current transaction. 
**Assuming this loan is assumable. And if not- what are the creative options?

Thanks!

[Don Konipol]

Quote from @Matthew Morrow:

Hi All

We have a client wishing to utilize a sub2 strategy for several purchased in our market. Fantastic idea and even better deal if we can find a seller willing to cooperate. What is everyone's experience with this regarding the due on sale clause once lenders are notified? Or have you had any experience with this where they either 1- don't care, or 2- continue but call the loan due. 
Broker is engaged, just looking for some real world feedback from a current transaction. 
**Assuming this loan is assumable. And if not- what are the creative options?

Thanks!

99.5% of loans are NOT assumable without lender consent.  Subject to is NOT a loan assumption; it is purchasing a property without paying off OR assuming the mortgage.  So, the mortgage remains in place, with full liability as stated in the mortgage/deed of trust for the original borrower.
I just completed a RARE subject to sale in which the bank holding our mortgage note agreed, via signed documentation, to allow the sale of the property without enforcing the “due on sale” clause.  This was based on our continuing commercial relationship with this institution.  
The way most people do subject to deals is by setting up a system of checks and balances providing some protection for both buyer and seller, and trying to avoid alerting the lender that a deed transfer has taken place. With technology and on line title records, major loan servicers are set up to detect deed transfers in major counties.  Whether or not the note holder chooses to do anything depends on many factors, not the least of which is the interest rate being paid on the note I question vs the current market mortgage rate.  
In a subject to transaction the buyer may be in a precarious position if the note is called and he doesn’t have access to capital to pay off the note, or doesn’t have a capacity to obtain new financing.  The seller is in even a more precarious position.  If the buyer defaults, the seller finds himself personally liable for payments, or if the default goes far enough, liable payment of the loan balance, on a property he does not own.  Even with a right of foreclosure in event of default, he still may have to spend tens of thousands of dollars foreclosing, and if the buyer files BK can spend even more.  
As a broker in the transaction, you’d want the principal party you represent to sign waivers acknowledging their understanding of the significant risks they’re undertaking.  My personal opinion is that unless there is no other way to sell the house, subject to should only be used when BOTH parties are sophisticated investors.