Here are some FAQ’s in regards to “Subject-To” Transactions:

1. What does “Subject-To” mean?
   • “Subject-To” is a way of purchasing real estate where the buyer takes title to the property, and the existing loan stays in the name of the seller. In other words, the sale is completed “Subject-To” the existing financing. The buyer now controls the property and makes the mortgage payments on the seller’s existing mortgage.
     
2. Is this legal?
   • Yes, Fill-able HUD-1 This is a standard form that title/escrow companies and attorneys use to build settlement statements. Page 396, second paragraph states: “Line 203 is used for cases in which the Borrower is assuming or taking title subject to an existing loan or lien on the property.” This is what Title will utilize & fill in.
3. How do I know the mortgage payment will get paid on time?
   • We set up a third-party servicing company to withdraw money from our account and make direct payments to the mortgage. Setting up a third party servicer also shows proof that payments are being made by the buyer when the seller looks to adjust their DTI for a new loan.
4. What happens if you miss a payment?
   • We use a Deed in Lieu (or also called a Performance Deed) pre-signed and held at the servicing company. The house is effectively transferred back into the sellers name if the buyer defaults over a 30 day period, without any hassles of a formal foreclosure process.
5. Who is responsible if there are repairs or maintenance needed on the property?
   • Once the deed is transferred and escrow is closed, the seller no longer needs to worry about anything regarding the property. The new owner (the buyer), is now responsible for everything related to this property.
6. Won’t this affect my Debt-To-Income to buy another property?
   1. For Conventional and FHA loans, we pre-pay 1 month of a lease agreement upfront and the lender that we use is typically able to wipe off 75% of the seller’s DTI. After 1 year of on-time payments, 100% of the DTI should be removed from the seller’s name. All you will need to do is show your lender that on-time payments are being made by us for the past year. (This is also a benefit to using a servicing company as they can provide an official 3rd party proof.)
7. How does “Subject-To” affect my credit?
   1. Since the loan is left in the seller’s name, the seller’s credit score benefits from our on-time payments.
8. What happens if the Due-On-Sale Clause is called?

   1. This rarely happens, but if the bank sees the deed has been transferred, they have the option (not the obligation) to request the remaining loan balance be paid in full (hence the name due on sale). If this situation ever occurred, we would have a basic 3 step course of action:

• 1. Call the lender and describe the situation. Banks will often avoid/rescind calling Due-On-Sale for reason of note performance. Banks want their notes to perform.
  2. Refinance or sell the property. 
  3. If the first two steps haven’t already taken care of the DOS, then we would simply sign an agreement for sale and deed the property back to the original sellers. We would then continue to make the payments on the seller’s behalf and execute a sale or refinance before the contract expiration date.