"Subject to" is a type of real estate transaction used to assign ownership rights in exchange for repayment of mortgage notes. Also known as "Subject 2" and "Sub2", this type of real estate transaction provides several benefits to all parties involved.
Subject to transactions are not without risk. However, if appropriate legal documents are executed and all parties engage in due diligence, Subject to transactions can be one of the most rewarding and least expensive real estate deals.
More real estate investors are beginning to engage in Subject 2 contracts. Due to the current credit crunch, many investors are finding their line of credit has decreased. With skyrocketing foreclosure rates, banks are apprehensive about providing mortgage loans. Subject to offers an alternative to traditional financing and allows the Seller to get out from under their mortgage note.
One of the main reasons Sellers turn to Sub2 is because they need to sell their home, but unable to find a buyer. A secondary reason is to obtain debt reduction. Many homeowners are facing foreclosure. If they can find someone to help them become current on mortgage payments and stop foreclosure, they can save their credit.
With Subject to, homeowners assign ownership rights to a buyer. The mortgage note remains in the Seller's name, while the buyer assumes ownership of the realastate. In most cases, the buyer pays a lower interest rate than if they were to obtain financing on their own. The buyer submits payments to the lender on behalf of the homeowner.
When arranging Subject to contracts it is a good idea to hire a real estate lawyer. Subject to real estate contracts are enforceable in court. It is important to make certain both parties are legally covered in the event either party defaults.
Subject 2 can be a lucrative strategy for expanding your real estate portfolio. However, if legal documents are not implemented, Subject to deals can become a nightmare. Thoroughly investigate the property and be certain to understand all details of the legal contract. Otherwise, both parties could potentially lose the property and all monies paid toward the purchase price.
Subject to is just one form of creative real estate financing. Learn more about investing in our real estate library; packed with informative articles on all types of real estate opportunities including foreclosures, short sales, bank owned, rent-to-own and more.