Bryan Ellis on the Seven Subject-To Flaws the Gurus Won’t Tell You
If you’re a creative real estate investor, no strategy is as powerful as Subject-To transactions. Despite the legality of Subject-To real estate deals in most of the United States, it undeniable that there can be some pretty big legal complications if you’re not careful. In fact, the top 7 subject-to-related problems for real estate investors are:
1. Misleading Info About The Mortgage Loan. Just be sure that you don’t have to stick with a bad deal in the event you discover that the owner didn’t give you all of the details about their loan. Also make sure there aren’t other obligations against the property - a title search will reveal this.
2. Errors In The Loan Amount And Outstanding Balance. It’s very common for home owners to give inaccurate information when it comes to their home loan balances. Usually it’s accidental, but the effect can be disastrous if the home owner owes significantly more against the property than you expect.
3. Debt Assumption Is A Huge “NO-NO”. Never agree - verbally or in writing - to “assume” the home owner’s debt. It’s probably not even possible to do so according to the seller’s mortgage, but it’s a very bad policy to give a seller this impression. Instead, make it clear you’ll be making the payments, and that your liability is to your agreement with the seller and not to the lender.
4. Due-On-Sale Notice. Always remember that you must tell the seller that their mortgage contract probably “prohibits” subject-to transactions, and that as a result the property could end up in foreclosure even if you make all payments 100% on time. We all know this is almost certain not to happen, but if it does, this notice can save you a lot of trouble.
5. Stipulate When You’ll Pay Off The Mortgage. Remember to specify an exact date when the mortgage you’re taking over will be paid off. Whether that’s one year or 10 years or all the way at the end of the mortgage, make your contract very clear about how long you can continue to make payments without getting the loan refinanced or paid off.
6. Date You Are Responsible For Payments. Specify the exact date when you become responsible for payments so that there’s no confusion about how long the seller must continue to make the payments before you take over.
7. Attorney Review. Ask your attorney to review your contract with each separate transaction, as subject-to transactions have received some negative publicity which has led to changing laws in a few states. Further, require in writing that the seller have the contract reviewed by their own attorney to avoid any future charge that the seller was misled or pressured into the agreement.
Bryan Ellis is a real estate investment strategist and internet marketing strategist in Atlanta, Georgia. He offers a huge amount of free training at his blog and through the Bryan Ellis Videos website.
