52 And Subject To


This is the 52nd article written for the Payson Roundup, which commemorates a year’s worth of articles.

It is a great experience writing these articles because each week it pushes me to try and write something interesting for you about the real estate industry.

At the same time, it gives me the benefit of researching real estate topics and provides me the opportunity to be up to date on the many facets of my profession.

This week’s topic is: subject to transaction.

We recently attended a seminar by Lance Churchill.

Churchill is an attorney who specializes in foreclosures, short sales, and he introduced us to the subject to clause.

A subject to transaction is when the buyer purchases a property without paying off the existing loans.

This property is purchased subject to the seller’s existing loans.

The buyer does not assume the seller’s loans, but he does make the payments on behalf of the seller.

As most loans are non-assumable today, Churchill conveyed that there is a perception that this is illegal; however, this is a misconception.

Churchill stated that the lender could activate the due on sale clause, but realistically, in today’s market, they will not if the loan continues to perform.

The advantage of a subject to transaction for the seller is that it may make the property more attractive to a buyer or investor.

If the seller is having financial difficulties and wants to avoid foreclosure, this may be a way to preserve one’s credit and get out from under the property.

The advantages for the buyer are many and one should research this if they are interested in this type of a transaction.

And now as they say, here’s the rest of the story.

There are cases when an unscrupulous buyer will solicit subject to transactions with uneducated sellers.

Sellers who are facing foreclosure are their prime targets. A buyer has little risk in a subject to transaction.

If the buyer cannot or will not make the payments they have little jeopardy, however, the seller will face foreclosure again.

The seller may get a home back that has been stripped, faces foreclosure again, and may not get forbearance on what they owe because the home has been gutted.

Other buyers may have the motivation to obtain the property by just taking over the payments in the hope of flipping the property.

If they are unsuccessful, the seller may quickly have the property back in their lap.

If you are a seller and are approached to do a subject to transaction, it is imperative that you research the creditability of the buyer and consult with a real estate attorney before proceeding.

Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.


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