You might be asking “What exactly are subject to deals“? Subject to existing financing is possibly the best financing method that investors have available. It means taking over the current owner’s mortgage payments and negotiating any equity above the remaining loan balance. Often, people offering subject to deals don’t have much equity in the home. This is a form of owner financing that people use when they need to get out of a house but are not receiving serious offers from retail buyers.
Why People Offer Subject to Deals
Typically, people offer subject to deals because of a negative event in their life. It may be a bad time for them but you are actually helping them out of a bad place. It could be a job transfer they are being forced to take, it could be a divorce, or it could be a job loss when they can no longer pay the mortgage. Subject to deals are caused from any number of things. In all most every case, it’s the result of the seller no longer being able to pay the mortgage payment.
You come in as a willing investor to explain to them that one of their options is deeding the property to you and you’ll take over the mortgage payments, maintain the property, the insurance, and the property taxes. They no longer have any financial obligation towards the house.
Why You Would Invest in Subject to Deals
A “Subject To” is getting the deed to a property without getting a new mortgage for the home. Instead, the seller signs over the deed to his home ‘subject to’ the existing mortgage. The buyer in this case makes the mortgage payments on the old loan, but does not need a new mortgage to acquire the home.
One main reason you want to invest this way is because you can take ownership of the property without putting up much of your own money. The other is because you don’t have to take out a new mortgage. Taking out a new mortgage takes time and money – if you can qualify. You’ll be filling out long application forms when you don’t know if you’ll even qualify. If you do qualify, at closing, you’ll be paying all kinds of loan fees, setting up escrow accounts and who knows what other costs will be slipped into the loan. A common term for many of the loan costs is “garbage fees”. It makes a lot more sense to take over an existing loan where all these costs and troubles have already been taken care of. You simply take possession of the house and start making the existing mortgage payments.
There are good reasons that you want to have possession of the deed to the house. Sellers may be reluctant to sign over the deed when their name is still on the mortgage. But you have reasons why you need your name on the deed when you are paying the mortgage. Sellers that have “Bad Debt” are those in financial trouble. These people are likely to be behind on the mortgage, have lost their job, acquired an illness, going through a divorce, etc. In these situations, you need to get the deed with a Subject To Deal. Your main concern is that this type of seller will continue to have financial problems that could affect the title to “your” property if the deed is still in their name. For example, if this seller gets judgments from creditors, the creditor can attach to any real estate the seller owns. That’s why you want to get this type of seller off of the title.
This short article is not intended to provide all of the details for subject to deals. But rather to show when you should consider this investment technique. If you don’t understand how to document and protect yourself with a subject to deal, then purchase a home study course or my book called ‘Investing in Real Estate with Lease Options and Subject Tos’. It can be found on my website – www.WendyPatton.com.
For more than 30 years, I’ve used the Sandwich Lease Option System and subject to deals to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
By Wendy Patton
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