Creative Finance Explained

“Subject-To” means buying a property by taking over the title from the seller, but leaving the original loan in the seller’s name. This way, the buyer owns the property and pays the seller’s mortgage, while the loan remains “Subject-To” the existing terms.

How Does SubTo Benefit You?

1. We take over all mortgage, insurance, PMI payments, maintenance and all overhead associated with the property. Seller is free of any repairs or maintenance. The buyer will be responsible for everything.

2. Will help improve credit profile when on-time payments are made. This should boost your credit. Since the mortgage is still in your name, and all the serviced payments are reported to the credit bureaus, your credit will receive direct benefit.

3. No need for banks or appraisals that slow the ability to close quickly.

Is Subto Legal?

Absolutely! In the closing statements that get distributed at the end of every real estate transaction, there is actually language and placeholders in there for loans getting taken over using subject-to. These transactions happen every day and you can verify on line 203:

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How Will I Know the Mortgage Payment will get Paid on Time?

We set up a third-party servicing company for every subject-to deal to withdraw money from our account and make direct payments to the parties involve, to ensure not only proof of payment, but to also eliminate the mortgage from your debt and protect your DTI ratio 

How Will this Affect My DTI (Debt-to-Income) to Buy Another Property?

We work with licensed service companies that will contact your bank to provide proof that the payment is being assumed by another party, therefore enabling your lender to remove it from your DTI. 

What Happens if a Buyer Defaults and Misses a Payment?

We structure what is called a “performance deed” or “Deed in Lieu” pre- signed and held at the servicing company. The house is effectively transferred back in the seller’s name if the buyer defaults after a 30-day period. In this situation the seller would inherit the property back and benefit from any and all loan paydown payments, improvements made to the property and appreciation that the property has seen. The seller could then sell the property again for even more money if they didn’t want to keep it. 

Who is Responsible if there are Repairs or Maintenance Needed on the Property?

The seller would not be responsible for any repairs or maintenance on the property after the deed is transferred. The buyer (person on the deed) is solely responsible of the property as it is now the legal owner. The seller is never responsible for the property after the deed is transferred. 

How are the Utilities and Insurance Handled?

We will have our insurance agent replace your current policy with our policy with the sellers added as an additional insured. So not only are we on the insurance policy but you will be on the insurance as well. We would swap the utilities into our name. 

How Long will the Mortgage Stay in My Name?

Everyone should expect the mortgage to stay in their name until the loan is paid off. As long as the payment is being serviced, having the mortgage in your name will only be a benefit. However, our partners and us will typically refinance or sell the property after 7 years to extract equity. 

What Happens if a Due-on-Sale Clause is Called?

This rarely happens but if the bank sees the deed has been transferred, they could request the remaining loan balance to be paid in one lump sum because they believe the property has been sold (hence the name due on sale). We have specific language in our closing documents to protect both of us. Essentially, we would deed the property back to you via limited POA and resell the home again on an executory contract. The deed will be held in escrow and recorded once the loan is fully paid.

This type of sale is the same as when you purchase a vehicle on a loan. You don’t receive the title of the car you buy until the loan on the car is paid, even though you still own the car and are responsible for it. The only difference with a house, we lose the tax benefits of having the deed, but it’s well worth it to keep us both protected.