Buying Property: "Subject To"

Buying Property: "Subject To"

I would like to take a moment to talk about one of the least talked about ways to purchase Real Estate, and also one of the BEST ways to purchase Real Estate, Buying Property "Subject To" first lets understand what it means.

"SUBJECT TO": Buying RE "Subject To" Simply stated: Your buying or taking control of a property "Subject To" the existing financing(mortgage or deed of trust) remaining in place in the sellers name.

Lets say that you recieved a call from a MOTIVATED seller, Mr.Seller he basically tells you that he MUST sell his house due to relocation from his job, and he has no time to list it with a realtor. Mr.Seller also tells you (through asking your probing questions) that he owe's about $100,000 on his mortgage, his payments are about $900.00 per month, including principal, interest, and taxes. Even though you are only just beginning Real Estate Investing, you know the estimated market value of Mr.Sellers home is about $130,000. hhhhmmmm, you smell a potential deal.

You rush over to Mr.Sellers home. It dosent matter in the least that you are just a novice real estate investor. After all, he needs to sell now. Your now sitting at his uuummm, kitchen table. Here is what you say. "Mr.Seller, i can take over your mortgage payments. I will start making them and continue making them every month until i get the house SOLD. This could take one month, or it could take years....theirs just no way to know for sure." "The ONLY promise that i can make is that i will make the mortgage payments no matter what. The mortgage will remain in your name the entire time, however long it takes. We can begin as soon as your ready to move."

Now obviously Mr.Seller asks if you can give him some of his equity in the form of CASH to help him with moving. After going back and fourth a couple of times, Mr.Seller and you agree on $3,000, which you will pay to Mr.Seller the day he moves out.

So, what do you have? You have a house with an estimated value of $130,000 that you will wind up paying about $103,000 for when all is said and done. You also have a payment of $900.00 per month. Since you don't have much CASH left, there's something you must do right MUST start MARKETING for a Buyer.

So, you place an AD in your local newspaper, and put a few signs up in Mr.Seller's neighborhood: "LEASE TO OWN-Bad Credit O.K." That should get your phone ringing. After screening out a few Bad apples, you find a young couple with good jobs and strong income who went through a BRIEF period of financial trouble a year or two ago.

You offer to LEASE them the home with a 12 month OPTION TO BUY it. Their monthly payment will be around $1,200, and the purchase price will be $135,000. They will also give you a NON-REFUNDABLE OPTION FEE of $5,000. You have a monthly POSITIVE CASH FLOW of $300.00- the difference between the $900.00 you are paying Mr.Seller's mortgage company and the $1,200.00 the young couple is paying you. You have also put $2,000.00 CASH into your pocket right now- the difference between the $3,000.00 CASH you gave Mr.Seller and the $5,000.00 CASH the young couple gave you. When the young couple exercises their OPTION TO BUY, you will also pocket $32,000.00 CHA-CHING!

During the next 12 months while the young couple is LEASING the home from you, you will make contacts with potential lenders on their behalf. You should do EVERYTHING in your power to help them qualify for a mortgage so they can exercise their OPTION, when the time comes, YOUR HERO, SULLY.




First i want to congrats you, that's a great deal !

I'm just learning about investing in Real Estate, so sorry if i make this longer.

But i just wonder : As you said earlier, the bank have agreed to do 95% financing. So why didn't you go for it, and keep the 15% (of 135k) for another deal, instead of getting a loan with 20% down payment?

Great Question!

I could do a 95% and use the other 15% to purchase another proptery. My main objective is to purchase properties with no money out of pocket. First of all, you have to know what you want to do with a property before you purchase it. In this case i wanted to use this house as my new place of resident. The home i have prior to purchasing this particular property is being rented out, and that was the main reason i used the other 15% towards the down payment. First, it would reduce my mortgage payment to 15%, and second, i would not have to pay for mortgage insurance. Keep in mind that 15% was not any money out of my pocket, but money which i've negotiated with the seller. My objective was purchased a piece of property without using any of my own money, and if i could purchase any properties for 95%-100% financing, then i've met my objective and i'll do it again and again. I hope this help answer your question.


Subject to

I heard a very well respected investor speak in WA state recently and she invests all over the country. She mentioned that you can no longer take a property "subject to" in the state of Washington. She lives in WA and has been investing here for over 20 years. I feel she's a good authority on the subject and knows what she's talking about.

Anyone else hear of this or other states where you can no longer use this strategy?

Thanks - Marc


Why does she say that you can no longer do "subject to" in WA?? What happens if you do??


She didn't get into specifics, just that something changed over the past year or two. Might have had to do with language from the lenders. I'm not sure what would happen if you get a signed contract with "subject to" in it, my first question would be to my escrow/title officer asking if they can close it and if not, why?

Subject to's

ST"s have NEVER been illegal. There has never been a subject to jail. Lenders have always had the right under a typical contract to call the loan due, force the new buyer to qualify etc.

I have no heard of anything changing in that regard.

subject to forms

Hey does anybody know what forms I need on a subject to besides QuitClaim deed and purchase agreement or would an option contract be better. I am taking a house subject to on Monday and have been trying to get Sully to answer me but I know he is busy. So if anyone knows anyone at all please let me know.

Thanks bunches

Subject-To Clarity

We have been doing subject-to deals for years in our state, however, recently some local legislation has been passed in some areas making these types of transactions illegal. It is not a criminal offense but you will find that RE attorneys and title companies who are up on their local laws will refuse to close such a deal. Ask an attorney in your area.

Some clarity on the basics of a sub-to. In reading some of the prior posts, there are a couple of things you should be aware of.

When you take title to the property sub-to, the existing liens and judgments on the property are NOT cleared. Only if the property actually goes to auction will the liens be cleared. Any existing liens, judgments etc. will stay in place and you will inherit them. However, no additional liens, judgments etc. will be placed subsequent to you taking title (unless they are on you).

That's why having the title searched prior to closing is so very important.

If the seller is behind on payments, you would make the payments that are in arrears to bring the mortgage current. You would have your seller sign an authorization for their lender to release any/all information pertaining to the loan to you and/or your attorney to verify the current loan balance plus all back payments and fees etc.

Your contract should have a clause in it that states if any liens etc exist upon title examination other than the existing loan(s)/lien(s) that were disclosed to you by the seller, you can terminate the contract with no further obligation and receive your deposit back immediately. Sidebar - I always insist that MY attorney hold the deposit check. I show the check to the seller and provide them with a copy but never let them have control of it.

As for the existing liens etc. This may not necessarily be a bad thing. If in fact the title comes back with liens this is a perfect opportunity to re-negotiate the purchase price to account for these liens. We will then, before closing, attempt to negotiate a deeply discounted payoff of the liens directly with the individual lien holders. We start off offering 10 cents on the dollar making the lien holders fully aware that this property is nearing foreclosure (if that's the case) which means their liens will get wiped out and they will get nothing if it goes to auction.

Be prepared to provide a copy of the foreclosure notice to the lien holder for confirmation. You would be surprised how little someone will take at the risk of getting nothing. The closer to the auction date the deeper the discount.

What you will have accomplished is a reduction in the purchase price based on the full face value of the liens and then extra money in your pocket for whatever discount you negotiate on the liens. You can make a TON of money off of the liens themselves.

It is also important to get a separate insurance policy in your name, or the name of the Land Trust or LLC that the property is deeded to (I prefer a Land Trust). Leave the existing policy in place to prevent unnecessary notice being sent to the lender. Technically they can call the note due upon title transfer, but in the 15 years I've been doing these, not one has called the note due. Just be aware they can and fully disclose this fact to your seller.

There are a lot more ins and outs of sub-to, but I know this post is getting long. Hope this has helped.

Sub-To is a great method, just make sure you cover all the bases.






trust agreement

I made an offer with a guy to have a trust agreement in place in order to move him out and my mom would take over payments as the trustee and I will be cobeneficiary and he would be beneficiary so nobody can do any refinancing or anything to the mortgage. How does that sound. He suppose to give me an answer on the trust agreement in the morning


"Work hard Play Harder"

step by step

thanks Sully I like the step by step approach. It helps me understand things better. I'm not good with the books but, trying to change that. I'm a hands on type need to see it happen in front of me to understand it if that makes any sense (like building an engine take it apart pcs by pcs its easy) by the book (not a chance). Like doing this course it will take me longer to understand it.

Thanks for in info.

Need Your Help

My son and his wife are buying a forclosed home and they received a good faith estimate from the lender that they don't understand. I don't know either and I am hoping you can help them because they are afraid to go ahead with the purchase of this home with all those fees that they put on the statement. Can you help?




Hi my Name is Jose G Navidad,
I have a question, I find a house that is going in auction june 24,09 can i steal make and offer to the Bank, etheir to purchase/and assign to investor, Or lease Option,or Rent to Own.
thank you.


So basically what your saying is that the buyer assumes the seller's payments. But how would the buyer assume payments if the seller's mortgage isn't assumable? And also what do you mean by "the seller is DEEDING the property over to the buyer?" I thought that was only the lender's decision.

Sorry for all the questions, I'm still pretty new at this, so I hope it isn't any trouble.

sully wrote:
I see your concern, however people(investors) get properties DEEDED to them all the time, it's NOT like i just made this up, this strategy has been around for years and years. I'm NOT quite sure as to what your talking about, when you say "seller couldn't legally take the tax benefits?" If you read the posts correctly i NEVER said that the seller would retain the tax benefits. You really have me lost, but if it's any help, the seller is DEEDING the property over to the buyer and the buyer makes the mortgage payments while keeping the mortgage in the sellers name, UNTIL the property is SOLD via LEASE OPTION under which the buyer would then qualify for a NEW mortgage, thats it. I feel this is the BEST and SIMPLEST way to aquire real estate, and certainly one of the most profitable.


"Open minds backed by knowledge, wisdom, persistence, and determination equals unstoppable excellence"

- wrecklessKane

Kudo's--- I just finished a book on this.

I just finished some learning materials on the subject 2's. But many people are unsure. I am in the middle of a deal and the owner is not living in the state and wants the home gone. Problem is he has to 2 mortgages. Is it wiser to buy this property at short sale or auction?

Sub-2 is not an assumption of the mortgage

wrecklessKane......Buying a property subject-to the existing mortgage is not the same as assuming the mortgage. The buyer is basically taking over the responsibility for making the payments to the mortgage company. The deed is transferred to the buyer who then becomes the owner of record.

Be careful to disclose all the potential issues with the seller that could arise as a result of this type of transaction. Mainly the "due on sale" clause. I have been doing sub-to deals for years and have never had one call, but it is very important to understand the dynamics of this type of deal and fully disclose to the seller to keep your liability minimal.


Deeding over property

Thanks for clearing that up. But what I don't get is how I'm suppose to get the deed to the property in my name without letting the lender know. Because I thought that was the lender's decision on whether or not the deed to the property gets passed on to a new owner.

CT Properties wrote:
wrecklessKane......Buying a property subject-to the existing mortgage is not the same as assuming the mortgage. The buyer is basically taking over the responsibility for making the payments to the mortgage company. The deed is transferred to the buyer who then becomes the owner of record.

Be careful to disclose all the potential issues with the seller that could arise as a result of this type of transaction. Mainly the "due on sale" clause. I have been doing sub-to deals for years and have never had one call, but it is very important to understand the dynamics of this type of deal and fully disclose to the seller to keep your liability minimal.



"Open minds backed by knowledge, wisdom, persistence, and determination equals unstoppable excellence"

- wrecklessKane

Very Good Info.

Sully, good job on your advice & everyone else that put in their wise decisions regarding "Subject To"! What does "comps" mean & what is "errears"?

Thanks guys,
John A

What type of contract would

What type of contract would you use for "Subject To" transaction?


Michael A Grohmann
Michael Anthony Investments

I like how you laid that

I like how you laid that example out very detailed!!!

Good info

That post was very informative. I would like to know exactly which kind of contract would I use for a subject-to an would I use a trust agreement when placing the property into a trust.

2 Questions

Hey Sully, I need to grab an investor agreement & and finders fee form between the investor & myself, can you instruct me on where I can get these 2-forms?

Thanks bud 4 everything!
John A.

Finders fee form

John A wrote:
Hey Sully, I need to grab an investor agreement & and finders fee form between the investor & myself, can you instruct me on where I can get these 2-forms?

Thanks bud 4 everything!
John A.

Hey John A I got you the finders fee form right here, but I'm not quite sure what the other thing you were looking for was. But anyway I hope this helps you out somewhat.

Good luck man! Cool

Finder’s Fee Agreement

Date:_____________________ at__________________________, (Enter State)
In consideration of services to be rendered by ____________________ (Finder), and _______________________________________________(Client) hereby employs Finder to refer to Client a prospective:
[]Single Family Home, [] Rental Units, []Land , []Commercial,
[]buyer owner,[] borrower tenant Other___________

1. Finder agrees not to participate in or conduct any negotiations with propects, or solicit loans on behalf of prospects. Finder is/is not licensed by the (Enter State) Department of Real Estate.

2. Finder hereby delivers to Client the name and identity of the following prospect:
Client is:
[]Single Family Home ,[]Rental Units , []Land , []Commercial
, []buyer owner , []borrower tenant , Other___________

3. Finder hereby delivers to Client particulars concerning a real estate parcel that Client might want:
Address: ________________________________________________________
Legal Description: _________________________________________________
Other: ___________________________________________________________


1. As compensation for Finder’s referral, Client agrees to pay Finder as follows:
[][ $ ___________
[] _____________% of the net profit upon sale.
[] _____________% of the net equity upon purchase.
[] Other:___________________________________ ___________________
1. Finder’s compensation is payable as follows:
[] Upon the closing and sale of the transaction involving the above-cited real property (#3), or upon the closing of the first transaction involving the above-cited prospect (#2).
[] Other: ________________________________________________________

2. Should the prospect or the property not result in a transaction involving Client within ______months of the date of this agreement, Client shall owe Finder no compensation.

3. Additional terms and conditions: __________________________________________________________

Understood and Agreed:

Finder:____________________________________ Date ________________
Client:_____________________________________ Date ________________


"Open minds backed by knowledge, wisdom, persistence, and determination equals unstoppable excellence"

- wrecklessKane

wreckless Kane

Thanks for looking out on the FF form, you said you grabbed it from Dean's where was it located because I checked the forms section & it wasn't there.

The other form was the Investor (lender) form between you and the other investor that your borrowing money from.

Your the man, thanks a $Million & enjoy your weekend!
John A.

u are the man

great posting... sully..

I have recently purchased the books and finished reading them
my biggest concern is not to be able to find the buyers... in the agreement time.. i am scare to fail and lose a good deal.. I live in fort lauderdale

what do you suggest? i do not have to use my credit.. and i do not have any money...


i want to make money using this system so that I will be able to invest more ..

Great info Sully, Very

Great info Sully,

Very interesting scenario, does "Subject To" works these days?


I have seen a few posts on "subject to", "lease option", "lease purchase" and I always have had a question about which set of contracts to use in which type of investment situation.

Can anyone share the type of contracts you use with these three types? Or is there anyone who might have a link to get contracts for these?

Is it best for me to have my Attorney recommend contracts to use?

Any information on contracts would be a great help.

I appreciate any help.

Jason King

lease options

I just wanted to say thanks for some valued information for a newbie out here. I just recently did a lease option on a family home for myself and my husband. I had looked at this property a year ago and talked to the owner, at that time he wasn,t willing to negotiate. He wanted 345,000 for the property. We really wanted it but decide to wait it out based on a few catch phrases from the owner letting us know his finacial picture. As it turned out it was worth the wait. He contacted us 2 months ago and asked if we were still interested. Of course we were. So we met with owner only to find out he was in preforclosure. He was 5 months behind on payments and had recieved his first set of letters from the lender. I had him call the bank and see what kind of terms they would give on a forbearance. Get this 15 minutes later he calls me back and says they will adjust his payments for the next 3 months to include just the principal he was in arrears. The interest and fees would be forgiven if those 3 payments were made on time. So we did a lease option with him taking over those payments and the loan while it is still in his name. We got this property for 241,000, and to top it all off the previous owner also qualifies for a restructed loan lowering paymnets by 750.00 a month and making it an assumable loan at the time of financing for us. I had read Deans book at the time,but was dragging my feet (FEAR) false evidence appearing real, So after this We are running to look at properties that could possibly allow some of the same things.


Motivated Seller

Loved your article, Sully!

Just want to let everyone know, also,
I'm a motivated seller with a buyer already
just need help with negotiating my 2nd mortgage
lender down a little.

Know anyone that can help?



Best Regards,
(Licensed Realtor-Military Vet-9/11Vet)
A self-directed realization for 2014 is to:
Live life as if always on vacation and have all the good health, time, & wealth to enjoy it.
Work, only when and IF desired. Helping others do the same. It Pay$ To Connect!
Always In Gratitude.....

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