Subject To Change


Subject-to is a way of purchasing property when there is an existing lien (i.e., Mortgage, Deed of Trust). It is defined as: "Acquiring ownership to a property from a seller without paying off the existing liens secured against the property. It is a way of essentially assuming a non assumable loan. This technique is what you see gurus touting on late night infomercials. While the technique is not inherently illegal and can be an excellent tool in an investors "toolbox" one should be cautioned against some of the potential risks of entering into such agreement. Investors or buyers who are acquiring property using this technique are often not experienced real estate professionals. One risk that is largely unspoken by gurus and teachers of this method is the risk of the original borrower of the note that the property was taken subject to filing bankruptcy. In this circumstance the investor owns the house and equity in the house however the original borrower still owns financial commitments to the loan taken subject to. The loan can be included in the bankruptcy and the property could likely end up being foreclosed on by the original lien holder. Gurus also teach that the investors in "subject-to" deals are free from liability. This couldn't be further from the truth. You could be subject to charges of equity skimming and various types of fraud charges... watch out if you're dealing with an FHA or VA loan. It could turn into a federal crime. Some techniques teach to hide the ownership of the property by placing the property in a trust and selling the beneficial interest of the trust. This is an attempt to avoid triggering the due on sale clause (which is found in most conventional mortgages). Because of the St Germain Act , conveying property into a trust is permissablle and does not not violate the due on sale clause.. The due on sale clause is widely thought of as not being a threat to the investor because mortgage companies are not active in calling notes due in cause of violating this clause in a mortgage. However some mortgage companies could consider this practice to be fraud to a certain degree. That being said--for short term this technique can be a wonderful tool for the experienced investor.

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