Bryan Ellis Exposes Seven Serious Subject-To Problems
In the world of creative real estate investing, few strategies are as powerful or desirable to a real estate investor as Subject-To transactions. Despite the fact that Subject-To real estate deals are completely legal in most of the United States, it still can’t be denied 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. Inaccurate Representation Of Loans Terms & Other Encumbrances. Be sure to have the right to terminate your agreement if the owner doesn’t tell you everything about every obligation for which the property is collateral. Remember – those obligations become your responsibility after you own the property.
2. Misstatement of the Loan Balance. The home owner you’re working with might not tell you the right loan balance. Whether they do this on purpose or not, you can get stuck in a difficult spot if the balance is greater than you expected. So leave yourself an out if this happens.
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. The Pay-Off Date – When Is It? Just because there are 25 years remaining on the loan you’re taking subject-to doesn’t mean the home owner is comfortable with your keeping the loan open for that long. Always specify exactly how long you are allowed to keep the loan open before refinancing.
6. When Do You Begin Payments? Include in your agreement the date when you become responsible for making payments. Generally that will be on the day of closing, but it could be before or after.
7. Review By Lawyer. Make sure that YOUR lawyer reviews your purchase and sale agreement, and require that your seller doe the same with his or her lawyer.
Without a doubt, Subject-To real estate investing opens the door to a larger portfolio and more deals than any individual could otherwise hope to achieve. But be sure to address each of these issues in each transaction so that your subject-to real estate investing deals will proceed without a hitch.
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.
