Subject-to Transactions: 100 Percent safe?
We might as well deal with the hard facts up front: mortgage companies do not necessarily
like subject-to transactions, and if they dont like yours, then they can demand the loan be paid in full. Period. End of story.I wish that I now had a However or a But, to go along with those hard facts. I dont. Your mortgage company does have the ability to demand that if you are not the borrower on the lien and you have obtained a property through a subject-to transaction that you pay the whole thing at once. (Here is the best however Ive got) However, they seldom if ever do.
I have done many, many subject-to transactions, and I have helped other investors and students do many, many more. In the past decade and a half that I have been successfully working in real estate investing, never once have I had a subject-to transaction fall through for this reason. But it is a possibility, and so we do need to address it.
First, lets think about this practically. Does a mortgage company want a house, or a regular payment that garners them regular interest and profits each month? That is easy. They want the profits. If they wanted properties, they would be real estate investors instead of large money lenders. If you are making regular payments, then it is highly unlikely that a mortgage company is going to try and take your house away. In fact, theyd be crazy to do so and any lender will tell you the same. So theyre just not going to do it.
Next, lets consider the worst case scenario (this is the entire reason that this option became part of mortgage agreements in the first place). Imagine that interest rates climbed exponentially up to 15 or 16 percent. The original borrower got their mortgage when interest rates were 5 percent. The mortgage company sure could make a lot more money on the same loan if it had a higher interest rate, so maybe they would rather make you get a new loan or kick you out of your house in order to get that 10 percent profit margin, right? Well, yes and no. That is a big gamble for a lender. It assumes that not only can they find someone else to loan money to these days, a sketchy proposition but also that they will be able to find that person immediately without wasting months or years with the house on the market trying to find a new buyer. It is a risk that is just not worth it, and as long as you pay your bills on time, the odds are highly in your favor that you will own that property in the scheduled amount of time and without any monkey business on the part of the lender.
So is it a possibility? Yes, and you should be aware of it. Is it going to happen to you? The odds are about a million to one that it will not.
Of course, all numbers are used for demonstrative purposes only. You should always consult legal, financial and real estate investing experts before you make any real estate commitments.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com
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