Subject To

Creative financing, or "other than" traditional and/or conventional real estate investing, is basically working out an agreement that is fair both the seller and the buyer, without using banks or mortgage brokers. By incorporating this type of financing, the sellers can sell their property for the price they want and in a timely fashion especially when the seller is facing foreclosure on their home or other property.

Buying real estate "Subject To" is a technique that can allow you to acquire a property with virtually no cash for new loan financing costs by leaving the seller's existing mortgage in place. This means that you do not have to get a loan to buy the property because you have purchased the property "subject to" the existing loan or loans. Practically, this means that the owner deeds the property to you and you both agree that you will make the payments on his mortgage. Since the owner's name is still on the loan he does remain liable for the payments however.

While there are many benefits to investing in real estate using subject to techniques there are a couple of pitfalls that are not avoidable. The most important drawback of subject to purchases is the Due on Sale Clause (DOSC) that nearly every lender utilizes in their loan documents. This clause states that nearly any transfer of the property that occurs could allow the lender to call the loan all due and payable immediately. But at the same time it would be extremely rare that the lender would call the loan due if payments are current due to the costs of foreclosure. Also to the Buyer(s) it is like any conventional deal of home ownership except the Buyer(s) did NOT have to apply or qualify to get a new loan, just assumes the existing Seller(s) mortgage(s).

The new Buy(s) can live there, rent it or sell it. Again if  the Seller(s) is in foreclosure and the back payments are not too high and there is some equity, then the new Buyer(s) can pay the loan(s) current and reinstate, but do NOT do as a Short Sale. Often times the Seller(s) will actually pay the Buyer(s), no really, it's true, to do the deal to protect there credit.