Home : What is "Subject to"?

What is "Subject to"?

Posted by Tina Merritt on 1/19/2010 at 10:16 AM
Posted in Real Estate Investing

"Subject to" (as it relates to real estate) refers to a method of purchasing a property while leaving the seller's existing mortgage(s) in place.

The seller deeds the property to the buyer, who agrees to make the existing mortgage payments on the property. In most cases, the seller is not released from liability on the mortgage. In some cases, the agreement may also include the provision that the buyer either sell or refinance the property within a certain period of time.

What is the main benefit? The seller's costs to sell are usually very small with this type of transaction. It's also easy to sell this way as the buyer does not need to qualify for a mortgage and incur a high cost for closing on the property.

The main negative? Most mortgages contain a due on sale clause. This allows the lender to call the note if there is a transfer of title on the property. If the lender is made aware of the sale, they could require payment in full and the original owner (the seller) is liable party.

Tina Merritt is an 11 year veteran Real Estate Agent and Trainer based out of Virginia Beach, Virginia. She holds a degree in economics from Virginia Tech and post-baccalaureate from Virginia Commonwealth in real estate and land development. As an avid social networker and internet marketer, Tina helps real estate agents, loan officers and affiliated industries embrace technology. As a real estate agent, Tina primarily deals with marketing and selling properties deemed "hard to sell" and also works with real estate investors helping them build and/or liquidate their portfolios for maximum profit.

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2 Comments

Posted by member11061818 on 01/22/2010 9:27 AM

Great definition. I was trying to figure that one out and found one explanation here:
http://www.foreclosureuniversity.com/studycenter/freereports/buying_r...

and here, <a href="http://en.wikipedia.org/wiki/Subject-to">Wikipedia</...

but, I feel your explanation makes more sense to me.

ty

Posted by member11000083 on 02/24/2010 9:14 PM

Without a lender's release from the "due on sale" clause, such a transaction should not be undertaken by sellers. Again, the past couple years should be good training to avoid such risk. That said, if the seller has strong enough credit or if the lender feels the seller cannot continue to service the note, such a release may be available. Frequently, the purchaser willing to engage the process will find seemingly difficult or impossible requests may have better potential than originally believed.

Blake Ratcliff
www.irreia.org

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