How do I buy "Subject To" an existing loan?

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Submitted by Keith on Sun, 04/13/2008 - 3:51pm.

What if an owner is willing to sell a property “subject to” and give you 5 yrs. to pay off? What sort of documentation do you need in place to protect you from the owner changing their mind? What exactly is transferred by the owner to the investor on a “subject to sale”, since the trust deed is held by the bank? Does the owner just “quit claim” what rights he has? What exactly is signed over? The final question, if you bought a home “subject to” and a year or so into it you had a good equity position (assuming here that you had a few years to pay it off) is it possible to get a second mortgage or home equity credit line by the investor as the new property owner while the initial financing is still in place with the prior owner?

Comments:

Submitted by Lance on Tue, 04/15/2008 - 10:39am.

Hello Keith, The owner Hello Keith, The owner can’t change their mind - in a “subject to sale” you now own the home and there is little the homeowner can do. Note that the loan will have a “due on sale” clause and that the old owner may be able to get the lender to stop taking your payments and foreclose. Ownership of the home is transferred. You can use any valid form of deed, including a quit claim or grant deed. There is no law that I’m aware of that would prevent you from getting a 2nd mortgage or equity line on a property with an existing “subject to” 1st. That said, I think it would scare most lenders off. From your questions you seem to be interested in using the “subject to” loan as long term financing. I think this is unwise. The lender could invoke the due on sale clause at anytime and the past homeowner will eventually get upset that this is still on their credit - especially if it prevents them buying another home or a car. If you do choose to pursue this I would recommend being very clear in your agreement with the homeowner that this will remain on their credit for an extended period.