Subject To

Can anyone elaborate on Subject To? I have an owner who is advertising that they want a contract Subject To.

You receive a deed to the property “subject to” the existing financing that is in place. That is, you do not pay off the debt that the seller has accumulated; it stays in place, but as the new owner, you will (hopefully) make payments.

I would look carefully at any deal where the seller is requested a “subject to” transaction, specifically. This is not a term that most homeowners know about. Find out more about the seller and how long they have owned or lived in the property.

“Subject to” transactions are not without risks for both sides. Because the debt is not being paid off, the seller is taking a risk that the buyer will keep up the payments. If the loan goes into default, it will be a blemish on the credit of the seller, not the buyer.

Conversely, almost all deeds of trusts and mortgages contain a “due on sale” clause. This means that if title to the property is conveyed to someone other than the original borrower, the lender usually has the right to call the loan in full. If that happens and you can’t refinance, you’ll lose the property.

If this is a deal that you intend to flip, you should be able to get in and out of the property before that happens, though.