How risky are Sub2 deal?

I haven’t done any Sub2 deals and was wondering what would happen in these cases.

Let’s say that you bought a property by taking over the loan Sub2. You then put it under a land trust with your corp being the beneficiary. Can any creditors or debtors put a lien on the property after you have acquired the property and put it under a land trust? Are there any other methods to prevent having any judgements or liens placed on the property?

What would happen if the seller filed for bankruptcy after you did a Sub2 on the property? Would it be difficulty to get the property back if the property was filed under bankruptcy?


Glad to meet you.

Once the deed is recorded in your entities name, then only liens or encumbrances that your entity is responsible for attachs to the property. If the previous owner has problems let’s say an IRS Lien after title has tranferred to your entity then it does not attach to the property.

If the seller files bankruptsy after you have the deed recorded and shows the mortgage as a debt, then once you make a payment on the property it is released from the bankruptsy. In other words if any payments are made on any debt listed in the bankruptcy this debt is then released from the bankruptcy.

Just make sure you record your deed when buying Subject To.

John $Cash$ Locke

But, John, with a S2 aren’t you only filing the land trust and keeping everything else private until the right time, ie. you’re cashed out? Couldn’t you just provide copy of the deed and/or land trust beneficial assignment to the attorney to have the lien/bankruptcy removed?


Once you take title to the property (recorded deed) albeit in a Corporate Entity or Land trust then the property ownership has transferred. If any liens or encumbrances from the previous owner attached they would not be valid and you could have them removed. An attorney could do this for you, however when the time came for you to have your buyer refinance the Title Company would see that the lien or encumbrace was recorded after you took title so it would be removed at that time.

As far as bankruptcy is concerned you could contact the bankruptcy trustee, show that you are the owner of the property and have the property removed from the bankruptcy.

I have found that this is not a common occurance, it has happened in a few of my deals but since my corporate entity held title, there was no problem releasing leins, encumbrances or a release from the bankruptcy when it happened. Like I say it’s not a common thing or something that cannot be handled easily.

John $Cash$ Locke

John is right about making sure the deed is filed to protect yourself against the sellers creditors but the BK thing can be a bit more complicated. If the seller is forced to file BK for some other reason than the property they sold you they would still have to include the house debt and would want to do so to keep bank from ever collecting against them in a Chapter 7 case. If a Chapter 13 case you may not notice anything different. It could get really difficult with the lender being notified either way that the seller has sold the property and now does not want to pay for it. You may have to go to court and you may do it yourself and file a motion to let you keep the house and continue making the payments sinse selling the house without lender approval is a default on the loan. It could get messy but I do not think you would loose everything. If the judge did not allow you to take over the loan you may be given time to sell or refinance the loan. They would be fare to a third party in a normal course of business. It is no secret that sub2 are being done everyday. Hope I helped a little.

Thank you,

Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737

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