What Is Subject To? | Real Estate Investing Basics w/ Grant Kemp
You can pay more for the property than other investors and still make money using this method. Grant Kemp details exactly how the subject to model of house buying works revealing invaluable information such as the top lead list to find these deals and the fact that a “subject to” is a commercial, not a consumer transaction and therefore follows commercial rules.
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00:18 – Subject to is not “Assuming” a Loan, it is not a “Lease Option,” It is an “Acquisition Model.” Subject to is short for the phrase ”I will buy your house ‘subject to’ the underlying lien staying in place as-is.”
2:45 – Do not use the phrase “Taking over payment.” This phrase implies that the current lienholder has less responsibility or liability, which is not the case. The lien remains in their name.
4:30 – What makes a deal a deal? Other than the numbers, a Willing Seller. If you have this strategy in your toolbelt, you can buy at high LTV (Loan to Value) because you are not using your credit, you are using the existing lien. The financing is unlimited, built-in, non-institutionalized and non-recourse and you can use whatever disposition strategy is the most profitable. It is also relatively Fast and Cheap because you can do the transaction through an attorney.
10:39 – Subject to transactions are Commercial transaction not consumer transactions, therefore Dodd-Frank doesn’t apply. Grant’s Dodd Frank video explains this in detail - [ Ссылка ]
12:09 – Who is you seller? The subject to leads are in the same lists you already market to. Foreclosures are great, but they are typically 6 months behind. We know this because Dodd-Frank requires the bank to allow 180 days before the bank can even start the foreclosure process. Low/No equity properties. Divorce is a great lead source and vacant homes.
16:46 – Traditional bank financing model. Sellers have an underlying lien, a Buyer wants the house. The title company issues a warranty deed to the buyer and a Note or Deed of Trust to the buyer’s bank. Once the transaction is funded, the seller is now out of the picture. With Subject to, the seller still has the underlying lien, note and deed of trust with the original institution. The seller gives the Warranty Deed to the Buyer. The buyer makes monthly payments on the underlying lien on the seller’s behalf. Grant's Wrap Around Deal video breaks down the numbers on similar deals. - [ Ссылка ]
22:40 – In the Deed of Trust, the note holder must list a trustee to do the foreclosure. They will typically put the name of one of the attorney partners in a large firm. If they must foreclose and that attorney is no longer with the firm, they must first file an appointment of substitute trustee to get a new trustee. That is why the appointment of substitute trustee filing is a source for leads as well. As the buyer, you issue the seller, you issue them a deed of trust to secure performance. This allows the sellers to foreclosure on you should you not perform. The Deed of Trust between the sellers and the bank is in the first lien position. If the first lien position loan is foreclosed, then the secondary lien position is wiped out.
30:23 – The one risk is the “DUE ON SALE CLAUSE.” It states that, if the seller sells the property, the bank holding the lien has the right to call for the entire remainder of the loan to be paid in full.
32:35 – Typical deal with be between $100-$150K, about $8,000 behind in payments, needing around $12-$15K in rehab owing around $75K. Grant's Backing into the deal video explains this in great detail - [ Ссылка ]
37:51 – You may need cash to float some of these deals. You must use attorneys who are familiar with subject to transactions so that you can get good contracts. Be honest and only promise what you can perform and properly disclose everything. A common question the sellers will ask is “Can I buy another home?” That is entirely up to the underwriter on the home they are trying to buy.
