Subject to refers to a real estate agreement which allows buyers to take over mortgage payments through assignment of ownership rights. This strategy can be used by individuals who do not qualify for traditional lending and is sometimes used by real estate investors to obtain properties from individuals facing foreclosure.
Subject to is also referred to as Sub2 and Subject 2. Individuals who desire to conduct additional online research should utilize all three references to maximize available information. Subject to transactions can provide benefits to all parties involved. However, this type of transaction is best handled by a real estate lawyer to ensure proper documents are submitted through the courts and legal contracts drafted to protect all parties involved.
Sub 2 gives buyers the chance to buy a house with no money down and no credit checks. Buyers do not need to provide down payments or enter into high interest bad credit lender mortgage loans. However, if property owners are delinquent in mortgage payments or owe property taxes, the buyer will need to cure these debts to ensure foreclosure does not occur.
Using Subject to, buyers assume mortgage payments and home loans remain in the original mortgagor's name. Sellers must conduct due diligence to ensure the buyer is financially prepared to pay monthly mortgage installments.
One primary reason sellers enter into subject to agreements is because they need to sell their house but have been unsuccessful in locating a qualified buyer. Another common reason is when property owners are facing foreclosure. If borrowers can locate a buyer willing to cure mortgage arrears and take over house payments, they can stop foreclosure and reduce negative impact against their credit.
Subject 2 can be a good strategy for real estate investors. After the banking meltdown and subprime lending crisis, banks began limiting the number of loans investors could have. Subject to provides an alternative solution to conventional financing and allows sellers to obtain debt relief by assigning ownership rights. Investors purchase properties at a reasonable cost and sellers eliminate financial burdens associated with the mortgage loan.
Subject to contracts must be recorded through local courts in the district where the property is located. The contract documents the transfer of ownership rights to the buyer. It is important to realize that ownership rights are "subject to" the buyer fulfilling financial obligations. If buyers default on Sub2 contracts, ownership rights are transferred back to the seller. When this occurs, buyers lose all funds invested into the property purchase.
Subject 2 real estate contracts are legal documents which are enforceable in a court of law. Sub2 contracts usually last between two and five years to provide buyers the opportunity to establish or repair credit. Once Subject 2 contracts expire, buyers apply for a home mortgage loan through a conventional lender.
Buyers will be responsible for costs typically associated with mortgage lending. Common expenses include loan points, loan origination fees, mortgage insurance, real estate appraisals, property inspections, legal fees, and closing costs.
We invite you to learn more about alternative home buying solutions, along with additional information and resources regarding Subject to transactions in our real estate article library. Subscribe to our mailing list to receive updated information and notification when new articles are published. We look forward to becoming your one-stop-shop for real estate, investing, and personal finance information.
Published on August 30, 2010 at 02:53 AM