What is Subject to financing.

Question

So is this where the new buyer takes over the payments and has the deed transfered while  the seller remains responsible for the credit?

If I am correct, what happens if the seller files bankruptcy after the deal closes. The attorney would probaly tell them to include the loan in the BK right?

Dirk Smithson · Answer

Thanks for the replys, Taking over someones payment on a property seems very risky in the event they file BK. Ill do some more research on this, this has been a concern of mine and one of the main reasons I havnt done a subject to.

Daniel Schiller · Answer

Dirk,

You should always consult with a bankruptcy attorney if you view that as a counter-party risk.  Also, if you have knowledge of the seller's impending BK / distress, the deal can be viewed as a preferred transaction and immediately clawed back by the trustee.

Be careful.

Daniel

Richard Holbeck · Answer

Dirk,

SUBJECT TO is generally used anytime there is an existing loan/lien on the property. The deed transfers but the loan is not paid off or formally assumed. In the event the borrower files for BK then it is possible that they will include it in the BK. However if there is no equity in the property it may be set aside as the trustee would have no use for it. (I am NOT a BK expert so you may get different answers here)

If the mortgage is in default then yes you will have to bring the loan current (reinstatement).

Rich

Dirk Smithson · Answer

Also with this type of deal you have to have cash to bring the mortgage out of default. Is this correct?