What Does “Subject To” Mean In Real Estate?

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Have you ever wondered what “subject to” means in real estate? While it can have a lot of different meanings, in the context of real estate investing, it usually refers to a property that is sold “subject to” an existing loan. In other words, the buyer of the property agrees to take over responsibility for making the mortgage payments, while the seller retains the deed to the property until the loan is paid off in full.

Subject To Mortgage

Another term related to “subject to” is subject to mortgage. Subject to mortgage is a purchase arrangement where the buyer of the subject property agrees that a mortgage against the property will be permitted to remain in a lie upon sale. Unlike loan assumptions where the buyer would be liable for the mortgage debt, a sale “subject to mortgage" leaves the original borrower on the hook for payments on the underlying debt.

What Does a “Subject To” Real Estate Contract Look Like

A subject-to-real estate contract is a document that legally binds two people together in an agreement where one person sells a property to another person, but the first person still owns the deed to the house. The subject of the real estate contract should state:

• The address of the property being sold
• The names of both the buyer and the seller
• How much money is exchanging hands
• When the transaction will take place
• Any other special conditions that need to be met

In most cases, hiring a real estate attorney who can navigate both buyers and sellers through a subject to real estate contract is advised. This is because the contract can be tricky to understand and even trickier to execute.

How To Find “Subject To” Properties

For those who are interested in purchasing a “subject to” property, knowing how to find them, as well as being mindful of a few important things, is essential. First, be sure to conduct thorough research on the property and the surrounding neighborhood — just as you would with any other real estate purchase.

Most subject properties are distressed properties. That means foreclosure, pre-foreclosure, or short sale. If you are targeting a specific location, be sure to filter out your search results by investment type, rental strategy, and more.

How To Structure a “Subject To” Deal in Real Estate

For home buyers, a “subject to” purchase can be a great way to buy a property without having to go through the hassle (and expense) of getting a mortgage. But for sellers, it can be a bit more complicated. Here are ways to structure a “subject to” deal in real estate:

• Sime Cash-to-Loan: This is where a buyer pays for the difference between the purchase price and the loan amount in cash up-front.
• Subject-to with Seller Financing: In this type of “subject to” deal, the seller agrees to finance the buyer for the difference between the purchase price and the loan amount, which is a form of a second mortgage on the property.
• Subject-to with Interest Wraparound: An “interest wraparound” mortgage is a type of financing where the buyer makes payments to the seller, which include interest on the underlying loan.

How To Do a “Subject To” Real Estate Transaction

If you are a real estate agent, it is important to learn how to conduct a “subject to” real estate transaction so you can better assist your clients. Here are the steps to go about this:

• Perform initial due diligence on the property.
• Get the facts from the seller. This includes the reason for selling, the mortgage balance, the monthly payment, the interest rate, and the loan terms.

• Determine the property's value after repair (if needed).
• Prepare your initial documents and have the seller sign them.
• Finalize the deal by having the seller sign the final documents

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