Buying a Home “Subject To”
“My husband and I are in a bad situation. He lost his job and we can’t afford to pay the mortgage. And if we rented our home out, we’d have a $1200 per month negative cashflow. We owe $534,000, but our home is only worth $500,000, so we can’t sell. Out of the blue, an investor called us yesterday and offered to take over our home over ‘subject to’. Can you explain what that means and if it’s something we should consider?”
***ANSWER:
What it means is that the investor is a shark and plans to rip you off another unsuspecting family!
Buying a home “subject to”, means buying it “subject to” the loan instead of assuming the loan. In other words, instead of them getting the bank’s approval to assume the loan in their name, your name stays on the loan.
Why is this important?
In all but a rapidly appreciating market, an investor would be a fool to take over your negative equity situation, then rent the house out and eat a nasty negative cashflow every month.
So what these sharks do is…
They take over your loan, leaving your name on it. Then they lease the house out, getting as much money up front from the tenant as possible. They may even have tenant pay a few months rent up front in exchange for a lower rent or the last two months rent-free.
Then they make no payments on the mortgage, letting the house be foreclosed on.
Summary:
The investor steals thousands of dollars of rent up front without spending a nickel.
The tenant gets booted out of the house early when it’s foreclosed on.
You get a foreclosure on your credit.
My advice is you tell that shark to take a hike…or a swim.