Some real estate investors may not realize they can take title to a piece of property and leave the mortgage in the seller’s name. This goes against traditional thinking, but it is legal and it happens all the time. It’s called a “subject to” deal.

A "subject to" deal is when the seller gives you the deed to his home but leaves his mortgage in place for you to make the payments. You don't have to qualify for the loan, have your credit checked, or go to closing with "out of pocket cash". You just use a piece of paper to transfer title (the deed).

Taking title in this manner is called “subject to” because the buyer is taking title subject to the underlying loan. Some may refer to this as "getting the deed". That’s a little misleading since you don’t actually get the deed. In reality, you must get the sellers’ to sign a new deed. Changing ownership of real estate isn’t like buying a car or mobile home. There is no previous title or ownership document to use because interest in the property is recorded in public records.

Buying real estate “subject to” has become more popular as the number of assumable loans diminish. A couple of decades ago it was very common for a buyer to be able to assume a seller’s existing loan without qualifying. Although a few assumable loans still exist (some FHA, VA, and private loans), in general, lenders don’t issue them anymore.

But why would you want to "assume a loan" anyway? By assuming the seller’s loan you must submit paperwork to the lender, get approved, and become personally liable for the debt. Why do that when you could take title “subject to” instead? “Subject to” eliminates personal liability to you because you have not guaranteed the note to the bank. Yet the deed transfers all the ownership rights of the property to you!

Let’s say a seller is behind on his mortgage payments and financially unable to bring them current. You, as the buyer, can agree to make his mortgage payments for him, if he’ll sign the deed of his property over to you. Meanwhile, the loan stays in the seller’s name, but you own the property!

The seller - faced with losing his house to foreclosure - has very little to lose with this arrangement and much to gain. If you bring his payments current and eventually pay off his loan (through sale of the property), he owes you a debt of gratitude for rescuing his credit along with his dignity... and taking a huge weight off his shoulders.

In today’s soft real estate market, many people need to sell. Some simply can’t find a buyer. Others are in pre-foreclosure and have no way out. “Subject to” is a great way for you to purchase properties without using any of your own money. Motivated sellers are everywhere, and some will even pay you to take their deed. With “subject to” deals, it’s a great time to buy real estate.

So why am I, a mortgage broker, teaching you this? Simple, I hope you will refer your home buyer(s) to us for their mortgage loan.

Please contact us with questions or comments at marcia@minocquamortgage.com or www.minocquamortgage.com. We will be happy to hear from you. Thanks, M