Question about Subject To

Real Estate Investing Real Estate Law
1

I was reading an article on CRE about buying subject to and it indicated that the lender can call the loan due if “any of the terms of the initial agreement are not met, such as payments being paid or transfer of the deed without paying off the original loan.” In the same article it mentions that the investor owns the home because they have the deed.

Please help me understand how the deed is transferred without risking the loan being called in?

Thanks!

2

Sub 2’s

See the following articles that details this matter, especially the part on subject to:

There are several issues.

First, interest rates. I had a very old mortgage, from 1994, on a rental I own which I recently paid off. It didn’t pay for me to refi but the interest rate on it was 7.5%. You can see that these days it doesn’t pay for the bank to call the note.

Besides, this note was long ago sold to investors, which my mortgage was. Most mortgages these days are. I know this because it has a ID# associated with this mortgage for an investor when I go online to check on the mortgage.

Now technically, such mortgages can be called by the bank if they find out the property changed hands. In this case, they don’t even own the mortgage, and why would the investor, or even the bank, care if he’s happily collecting 7.5% with current mortgages at 3%.

Second, in addition to the above, there’s legal challenges to banks trying to enforce mortgage provisions when mortgages are sold, even if they try, see:

http://www.gklaw.com/news.cfm?action=pub_detail&publication_id=915

So issues when loans are being called are, it doesn’t pay, and they can’t…

3

Google Garn St Germain act and it will tell you what you can do and what the lender can do.

4

Info on Due on Sale

I don’t know what article Arjay is referring to, but Bronchick has great article on this site discussing the particulars, risks as well problems with it.

https://www.creonline.com/beat-the-due-on-sale-clause.html

As to banks going after borrowers, an article this very morning on the internet points to the difficulty:

http://www.salon.com/2016/05/22/how_one_woman_beat_the_big_banks_the_amazing_true_story_about_how_wall_streets_mortgage_fraud_unraveled/

I avoid these problems entirely by going after truly undervalued deals with some money and credit.

To add some historical perspective, as mentioned in the Bronchick piece, in the 70’s, interest rates rose sharply, the “due on sale” clause seeks to eliminate all the cheaper low rate loans out there, thus forcing borrowers into higher rate loans. But by the late 90’s, the reverse is true, interest rates plunged to historic lows, and lenders are in no hurry to eliminate high rate loans in existence that borrowers failed to refi.

In other words, calling a 7.5% loan and forcing someone to take a 3.5% loan is silly.