Taking Title “Subject To”
SUBJECT TO: The purchase of real property with a pre-existing loan(s) against its title, without formally assuming any personal liability for the repayment of said lien(s).
The reason you can do a “subject to” deal, without any interference from the existing lender(s), is that they won’t know it’s you making the payments rather than their original borrower.
In the rare instance where you’re found out, you’d either have to refinance the property, resell the property, or qualify for a formal assumption of the lender’s loan.
My experience in getting “caught” by a lender happened just once in 33 years. My remedy was to simply assume the loan and ultimately resell the property. The only negative was an assumption fee of 2% of the loan amount, plus $200 dollars.
The reason you can avoid giving any notice of your involvement to the existing lenders is simple. You just employ the use of a Title Holding Trust (THT) that serves to legally camouflage the true identity of the new property owner.
For the camouflage to work you won’t want to use your name as the published trustee of the trust nor as part of the trust’s title verbiage either. So you could use the name of the street that the property is on for the name of the trust and a professional trustee entity, such as Financial Fitness LLC etc. as your trustee.
My expectation for the near future is that buying a home is going to become a lot more difficult to accomplish for an entry-level buyer. That’s due to an increasingly more stringent, loan-qualifying process, and an ever-rising home loan interest rate.
If you have a tool that allows you to get around those impediments, your deals will close quickly to everyone’s satisfaction. The speed of closing is due to no new loan qualifying, no loan processing and no appraisal requirement. However, you’d still want to employ the proven safeguards of using both escrow and title insurance.
An additional safeguard that’s highly recommended is the use of a loan collection service. That will ensure that all the loan payments made, are actually paid to the lender(s) by a neutral, bonded intermediary for the life of the senior loan(s).
The way most of these deals are structured is that a buyer makes a 20% down payment and takes title subject to the existing loans via an all-inclusive trust deed (AITD) that’s collected by a loan servicer. Make sure to incorporate a late charge fee and a balloon date in the promissory note that’s secured by the AITD.
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