A great way to finance properties is to purchase them subject to the existing mortgage. You receive title to the property: the Deed transfers to you. The loan, however, stays in the name of the borrower while you make the payments to the bank. The lender’s lien on the property remains intact so they still have the right to foreclose if payments are not made timely. The legal responsibility stays in the name of the borrower, but the ownership of the property transfers to you. This is a fast, easy method for obtaining financing on properties.
You may wonder why a seller would even consider doing this. Well it is simple. Truly motivated sellers just want a new start. They want out from under the burden of their house. They have limited options and time is often not on their side which makes them pretty flexible. For instance, suppose the motivated seller is in a pre-foreclosure situation. They’re ideal candidates for a subject to offer because they are about to lose their house. The offer would be to make up the back payments bringing the loan current and making all future payments on time. Although the seller must move, they do so without a foreclosure on their record. Their credit rating may also improve with the loan caught up a on-time monthly payments going forward.
It is important to remember that in a pre-foreclosure situation the loan is behind and must be brought current to halt the foreclosure process. The lender does not lose their right to foreclose if payments are not made timely. They also retain the right to enforce the due-on-sale clause which states that if ownership of the property is transferred without paying off the loan, the lender has the right to call the entire loan due. Although they retain that right, experience has proven that as long as payments are made timely to a bank, they do not invoke the due-on-sale. It does not behoove them (banks that is – private mortgages are a whole different story).
Another example of a situation where the seller would consider accepting a subject to offer is when they have inherited a house with a mortgage and don’t have the means to or don’t want to make the monthly payments. The original borrower whose credit could be affected is deceased. The family often does not are what happens to the existing mortgage as long as they are able to pull out whatever cash the house will yield at closing. Probate deals should always trigger the thought to negotiate for subject to financing.
Another great candidate group is homeowners with two mortgages. They purchased a second house thinking that they were going to sell this first one quickly. When it doesn’t sell they become more than happy to let somebody else take over making the monthly payments.
Don’t get locked into thinking that these are the only three circumstances in which subject to offers will be accepted. As a seller’s motivation grows, so does their flexibility. Don’t be shy to ask the seller if they are willing to accept a subject to offer. Just because you might never accept a subject to offer on your house does not mean a motivated seller will not. It never hurts to ask. Start making subject to offers and you will be amazed how many are accepted.