1. Is this legal?

   Yes, In HUD statements that get distributed at the end of a real estate transaction to show an overview of how all money was distributed, there is actually language and place holders in there for loans getting taken over via “Subject-To”. For actual proof of this, Please see the following link and read lines 203 and 503: Fill-able HUD-1

2. How will 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.

3. What happens if you miss a payment?

   We would use a Deed of Trust pre-signed and held at the servicing/title company. The house is effectively transferred back in the sellers name if the buyer defaults over a 30 day period. The seller in this situation would inherit the property back and benefit from any and all loan paydown payments, improvements made to the property, and appreciation that the property has seen. The cash given at closing would also be kept by the seller. The seller could then sell the property again for even more money if they didn’t want to keep it. Sellers who have done this have often mentioned to us that they hope we miss a payment.

4. Who is responsible if there are repairs or maintenance needed on the property?

   The seller would not be responsible for any repairs or maintenance on the property after the deed is transferred. The person responsible for any repairs or maintenance would be whoever is on the deed of the property. Since the seller’s name would only remain on the mortgage and the deed would change into the buyer's name, then the buyer would be responsible for all of the repairs and maintenance.

5. What happens if the house gets trashed and then you default and I inherit the property back?

   We would never let that happen for a few reasons. Firstly, we always have property insurance to protect from these types of situations. If the property ever did get trashed, we would just work with our insurance company to bring the property back up to its previous condition. Secondly, we would never let that happen because we already have spent a lot of money just to purchase the property. We would lose all the cash that we paid to the seller, the closing costs, the repairs and upgrades that we made in the property, and all of the payments towards the principal balance. Quite frankly, this would be financially irresponsible on our part and we probably would have been out of business a long time ago if this ever happened. That’s also the entire point of buying the property on subject to terms. Most investment loans are going to have a way higher interest rate - this makes it harder to make many properties cash flow. Going subject to allows for better terms to put renters in(There are different strategies/options as well to rent it out to increase cash flow - everything would be underwritten to ensure the numbers workout)

6. Won’t this affect my Debt-To-Income to buy another property?

   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 right then. 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. Sometimes it can be beneficial for a seller to wait the year and get the full DTI. That way they don’t buy a home in a rush and end up not liking it as well.

   --If you have a VA loan, the amount you can purchase on your next home would depend on how much entitlement you have remaining. If you didn’t have enough entitlement for your next property, then you can use your proceeds from the “Subject-To” sale towards the down payment needed for your next home.

   --I also work with different lenders that understand this concept, so they can ensure this happens. If you want to use a lender of your choice, we’d work with your loan underwriter to ensure this can be done before proceeding with the sale.

7. How does “Subject-To” affect my credit?

   Since the loan is left in the seller's name, when the on-time payments are made, the seller’s credit score is beneficially affected. The on-time payments to the lender gets reported back to the credit bureau and can significantly help someone who is looking to improve their credit score and can save the seller more money down the road to get their credit repaired

8. How long do you plan on keeping the mortgage in the seller's name?

   The short answer is forever. What I mean by forever is that we always tell sellers and agents to plan on keeping your name on the mortgage until the mortgage balance is paid off. However, I can tell you that my partners and I on average keep a property for about 7 years. The average homeowner stays in a house for about 7 years and it’s no different for investors. There is always potential to put a balloon on the property as well(This means after a set time frame, the remaining debt on the sale to the end buyer would be due when the time frame is up)

9. What happens if the Due-On-Sale Clause is called? 10 Different Solutions

   This rarely happens, but if the bank sees the deed has been transferred, they could request the remaining loan balance be paid in one lump sum because they believe the property has been sold (hence the name due on sale). . Due on sale is often misconstrued as the sellers issue, when actually it’s the buyers issue since it has already closed in title/escrow and the deed has been transferred. However, we could do any one of the following:

   Solution 1: We have spoken to lenders before to describe the situation and they have rescinded their request because they ultimately care about their notes performing. They’d rather not get refinanced out as they wouldn’t be making their interest anymore. At the end of the day, the people calling the notes due are just like you and I. They’re doing their job and then once they understand the situation, everyone is on the same page and they’ll allow it.

   Solution 2: You can also just ignore it. Sometimes they see hey we’re still getting the payments, why make a big deal out of this.

   Solution 3: Deed back to the seller and execute a land contract

   Solution 4: Deed back to seller and execute a lease-option

   Solution 5: Deed back to seller and execute a master lease(no option)

   Solution 6: Deed back to the seller and then place the property into a revocable trust

   Solution 7: Deed back to seller and then hold an unrecorded deed

   Solution 8: We could also refinance or sell the property at that point to pay the bank back the mortgage balance in which the mortgage in the seller’s name would be paid off

   Solution 9: One of the last options would be to assume the mortgage which an LLC can’t do so it would have to be done on the buyers personal name(This is another main reason for an investor to want subject to over assuming - if the asset is in their name, a tenant could sue down the road and take personal assets)

   Solution 10: Lastly the house can just be sold, which would cash out the seller's loan entirely

*****Here is a Due on Sale Mitigation company I refer to partners and use myself in these situations

https://creativetc.io/due-on-sale

As far as what an offer might look like on a numbers aspect, it would entirely depend on the mortgage information since we will be taking over the debt.