Basic Sub 2 Questions

Hi I am interested in Sub 2 Investing, but I am hearing so many different and conflicting things Im looking for some clarity.

  • I keep hearing there is a risk that the bank will call the loan due if the title changes is this true.

-what is the difference between sub 2, agreement for sale and lease option. Can all methods be done with the same type of motivated seller

-If the buyer of the home has a certain percentage of equity do you have to go through a foreclosure process to evict them.

-What is the worst case scenario if one of these deals goes wrong, can you get stuck with at house you dont want or owe hundreds of thousand on a mortgage.

Thanks for any help.

Yes, there is a chance that this could happen if they find out the title has changed. You need to be prepared just in case it does. Subject-to is taking control of the deed. It does not mean you have to record a new deed much like the way others have suggested. What I usually do is create a new deed and have my attorney hold it in escrow. I do not record it. I record instead an affidavit stating I have interest on the property but does not specify the details to cloud the title. So as far as everyone is concerned my seller is still owner of record. Technically, I do not violate the due on sale clause doing it this way.

Why do I even bother to create a new deed if I will not record it? For the seller’s benefit. When we close and the seller signs the new deed, as far as he is concerned he sold the property to me with the agreement that the loan will remain in his name for a certain amount of time. Of course I don’t tell him that I will not record this new deed. Other than a deed, I also have the seller give me a power of attorney appointing me as the property manager who is in charge of maintenance, paying the mortgage, taxes & insurance. I send a copy of this to his mortgage company and inform them that payment will be coming from my company from now on and that I should get copies of his monthly mortgage statement. If they run title they will see that title did not change; all they will see is the affidavit that I recorded which is not a problem for them.

If I sell the property to a buyer with an FHA financing, I won’t run into any title problems because again I didn’t record a new deed. I send an invoice to the title company, for my profit which goes on the seller’s side of the HUD-1. This actually how my last deal took shape.

Yes, you can do all with the seller. Agreement for deed is a type of owner financing but title does not vest until the entire amount is paid in full. Lease/op is you as the buyer lease the property with an option to buy the property up to a certain point.

Check with laws in your State. NY passed a law regarding buying a property from an owner who is foreclosure with equity.

Just because a seller is willing to do a subject-to does not mean it is a good deal. The numbers have to make sense. If the rents/income on the property is not enough to cover the mortgage then you’re just asking for trouble. Instead of helping out the seller, you will end up creating problems and put the house in foreclosure and ruin your reputation. You gotta know what the heck you’re doing when you acquire a property with any strategy.

So, you dont take the title in a land trust when buying subject 2? You just have the seller
sign the deed directly you (or your company) and hold it in escrow?

Thanks for the clarification.



Thank you for the response.

When you go to sell these properties via owner finance or lease option isn’t there and issue with title when the
new buyer is ready to cash you out? It seems the lender would bring up an issue with you not being on title but
selling a property?

Thanks again for any insight you could lend.


Why would the new lender have a problem. I am not the one they are financing. As long as clear title can be issued to the new buyer & there is title insurance. I issue an invoice to the title company for my equitable interest and I go on the HUD-1 on the sellers side. I am treated as additional payee just like the 1st mortgagee, 2nd mortgagee and any other liens holders (if any exist).

If the title company wants the original seller to sign relinquishing the old deed, then I have the original seller sign it. I inform the original seller that I will be paying off his loan and I need this paperwork signed and they always cooperate. This is exactly how I do it when I sell my sub2 deals.

I like doing it this way so I am never in the chain of title. God forbid if anything happens to an occupant in that house long after I am done with the deal (leaking oil tank, lead paint, etc…) and an attorney starts going through the chain of title to see who they can sue, I will never show up because I never recorded my deed.

Makes sense to me. Didn’t know you were able to do it that way.

Thanks again for the help!


I like this!!! Pretty sharp.

What if something happens and the seller (person you bought from) ends up getting a judgement filed against them will your deed is in escrow? The judgement is attached to the property because its still in the sellers name since you didn’t file the deed. What would you do then?
It’s just a thought that came to mind.

Good question. It has not happened to me but since my interest is filed before the judgment, I should be ahead of getting paid before the judgment. If there is any money left over for the owner after all liens ahead of the judgment is paid, that’s when the judgment amount will be paid.

You may want to run the scenario with an attorney.