Anyone here had any experience doing this? With the spread of current rates vs what they were 2 years ago seems ripe for subject to financing to make sense and able to make a better offer on a property than other.


"Subject to financing is when the investor or purchaser takes rights to the title for a property while the seller's existing mortgage stays in place. In the simplest terms, the real estate deal is "subject to" the seller's mortgage financing the deal. Subject to financing is a creative way to invest in real estate."

These can be really good options in some circumstances. You must realize the risks that come along with such an arrangement: due on sale/acceleration clause; possible bankruptcy of the seller; and issues that arise in insuring the property - who makes a claim for damages, who is the check made payable to if a claim is submitted, etc.

There was a Bigger Pockets Podcast episode a week or so ago where Green was talking about how he is seeing a drastic uptick in lenders foreclosing based on borrowers violating their due on sale clause (most of the time by transferring ownership from their own names into an LLC). A lot of us here called this and warned about it happening years ago.

If you own the property outright and want to Owner finance, go for it. But keeping an existing loan and seller financing the deal is asking for trouble.

Two sides to it:

1. Some banks equivocally hate subject to. Not at all what they signed up for. Are the deed and note two separate documents? Yes. But that note was intended for that borrower. Bet you some banks probably wish they could take legal action against those sellers, or maybe they can in the event of a default by the new owner servicing the debt?

2. If the note is still being serviced, wouldn't the bank prefer the asset to still perform and not have it paid off early?

Re: #2

Banks would rather have it paid off early if it's a loan that is sub 3% I'm guessing right now.

This. Particularly in this market with rates rising the investors in mortgages are looking for ways to get lower rate loans off the books. Neither buyer nor seller should sleep on potential outcomes if they choose this creative financing.

If due on sale clause is actually triggered and forced to pay (I've heard there are ways around it) couldn't you then just get traditional financing? Obviously at much higher interest rate but that's where you would be to start.

Looking at this for a primary residence for what it's worth and not investment property.

Can you link the podcast episode you are talking about?

Lender will quickly figure out what you did when they get a homeowners policy on your property that has someone else's name on it.

Then when you try to refinance it somewhere else, new lender will want to see your homeowner's insurance, tax returns, then they will see you 'sold' the house. Underwriters are the WORST.

It won't work.

What way to get around due on sale clause have you found? I think it's a point of emphasis now.

Just heard Pace Morby mention it - not sure of specifics.

https://www.instagram.com/reel/CsupBIaOYRA/?igshid=MzRlODBiNWFlZA==


Although I think his stuff is on lower value investment stuff where people are in the hole and not worth the bank making due on sale. Probably not applicable to nicer stuff.

Not exactly the same because there isn't a sale but are there any implications here with the recent surge in people keeping and renting their former homes instead of selling?

With regard to their mortgages? No.

I had never heard of this and all of the sudden every letter I get in the mail is mentioning it. I don't know if its idiots listening to a podcast and thinking they can be real estate geniuses or some spam newsletter went out. But its a thing all of the sudden. And its meant to take advantage of people in dire circumstances (foreclosure) for the benefit of the investor who's risk is limited.

Makes you wonder if people went to Ed Beckley's Buy Real Estate with No Money and No Title Insurance traveling road show.

Do any major mortgage underwriters allow loan assignment? The docs I just signed two days ago expressly forbade it.

12thAngryMan said:

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Do any major mortgage underwriters allow loan assignment? The docs I just signed two days ago expressly forbid it.

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No loan paperwork has allowed assignment since the early 80s.

FHA and VA loans are assignable. Everything else basically is not.

I just realized who I replied to. This is my client. Do not let his handle fool you, this guy has ice in his veins (and it served him well on this deal). When I figured out his handle mid way through the transaction, I literally laughed out loud. I love helping Aggies.

My bad, I should've said conventional

Red Pear Realty said:

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FHA and VA loans are assignable. Everything else basically is not.

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Let's be clear here, FHA and VA CAN BE qualifying assumable with agency underwriting, nothing is assignable.
Big difference

Yes, the new borrower must qualify, but that's implied with the suffix "able", right?

Btw, I don't know if I've ever told you this, but your Patton quote is probably my favorite quote not found in the Bible. The key word, to me, is "violently". I don't think most people understand the meaning of that word in this context. I used to do acquisitions at Hines, so that quote has served me well in deals over the years both in my former and current work.

Here is a basic video of him showing grant how they work.




Longer video with lots of good information on it.

Oh yeah, I'm familiar with how they work, that's why I'm saying don't do this, it's not worth it. Also, not a big fan of Grant Cardone.

Hah yeah - he's a lot. Great marketer though. Gets people to invest in his funds when should be investing in ones with less fees I assume.

we seem to have our own budding Grant Cardone clone on this very board!

Hahaha negative

not you my friend.

Well he's a full blown Scientologist, so you would be pretty dumb to follow him.

So after 20 years in lending I joined my wife and Regal here in Rockwall as an agent. So I spend half my day translating lender for my broker and the other half playing golf. I kid! This side lets me see the family a lot more. I did $1.5 last month and am targeting $3MM. The assign and the assume monikers are pretty specific and cause lots of issues in the govie realm.
The General was introduced to me by a librarian when I was in the 3rd grade. Been researching and writing about him ever since. Homeboy was the original "red ass"