Preforclosure's Subject To?

Question

Hello BP community,

New investor here and 4 years as a real estate agent.  Soaking up as much knowledge as possible and want to start building portfolio.  Does anybody have any info on what the process of taking a preforeclosure subject to?  Is that even possible?

Where you contact the owner and offer to pay what they owe the bank and then take the property subject to?  How do you contact the owner if on Zillow a rep is listed etc?

Michael Ealy · Answer

Aaron, it's possible but why do you want to do that?

When you buy a house subject to, you're getting the deed to the house by taking over the mortgage payments. The goal is usually to get in light - no money down or as close to no money as possible. If the house is a preforeclosure, the owner might owe 3-9 months of mortgage payments to the bank and owe back taxes, interest, penalties and legal fees.

Why not put a preforeclosure house under contract and then negotiate a short sale? In that way, you can get the house cheap or way below market value and then you can either wholesale it, or re-sell it or rent it out.

So the question is: what are you trying to do? DO you want to acquire a property using none of your credit? Do you want to acquire a property with NO cash? Or do you want to acquire a property below market value?

With subject to, you can get a property with no credit and with little to NO cash. BUT the trade off is you purchase the property usually close to market value.

If you want to get a house cheap or below market, then CASH is KING.

Justin Hammond · Answer

@Arron Lloyd I have built up a good sized portfolio of sub2’s, at least a couple dozen of them have been preforeclosures. I’d be happy to answer any specific questions you have if you want to PM me.

Michael Thompson · Answer

@Arron Lloyd - I've been focusing on preforclosure sub to deals for a few months now.  But they do become cash intensive when bringing the mortgage current.  I like them when they still have equity or I can make a large cash flow between the mortgage payment and rent or wrap mortgage or lease option.  Did I mention they are motivated?!

Brett Goldsmith · Answer

If the home has equity you can reinstate the account and cash out owners X amount for taking the home subject-to. Just important to have disclosures and agreement tight for these type of deals. May be wise to have seller hire legal counsel to ensure they understand what a subject-to is and the pros and cons.

Arron Lloyd · Answer

@Michael Thompson when you find your preforeclosure property who do you contact?  The owner or the person on the listing on zillow?

Arron Lloyd · Answer

Thanks Mike that's all super helpful!

My thinking behind it was to acquire the property and then lease option it.  My goal is capital right now since my capital and cash is not where it needs to be to purchase places.  Not too familiar with short sales but can look into.

I wanted to use none of my credit or cash to do this if possible.

Preforclosure's Subject To?

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