The Subject-To Advantage: How Sellers & Agents Benefit from Creative Finance

All right, so I'm going to give a quick rundown on subject-to deals, what the advantage is, and how it can help your sellers and in turn help you and boost your business. So first off, let's talk about what a subject-to deal is. Selling a home subject-to means that you are selling it subject to the underlying mortgage. So what that means is that the buyer will take ownership of the property while the existing mortgage remains in the seller's name. So the buyer will then take over those mortgage payments, but the original loan stays in place. This could be a really good strategy to help sale sellers who need a quick solution while offering buyers an alternative way to acquire property. So So we all know, you know, working with the banks can be a little bit difficult. So this just allows for more people to be able to buy homes. And it gives sellers kind of a creative way to sell homes, particularly in sticky situations, which we'll go over in a few minutes. So what are the key benefits? One thing that's huge that a lot of sellers love is there is a boost to their credit. So because that mortgage is staying in their name, mortgages look great on credit profiles, especially mortgages that have been open for a while. So that'll stay on their credit profile and then in turn give them a credit boost. There are lower closing costs associated with, with the transaction because there's no, you know, Fewer fees, no traditional commissions, so more money stays in the seller's pocket. So again, we'll go over this in a minute, but this is why a lot of sellers that don't have a lot of equity in their home choose to sell subject to. Another reason why a lot of sellers like it is because the sales are a lot of times faster. Typically, we can close a home in 10 to 14 days, give or take. There was one that closed in about That's certainly not typical. But yeah, definitely faster than a traditional method of selling homes. Also, additionally, it's a good way to avoid foreclosure because sales are happening so much faster. You're able, the seller is able to offload that property quicker and get a new, get the buyer in there to immediately start making payments, get them out of that foreclosure. Potentially catch up arrears. It's just, it's a good way for them to kind of avoid the bank taking over that house and still, still being able to have some relief from those payments. And then lastly, another reason why a lot of sellers like working with subject-to deals is because they are able to sell the home as is without making any repairs. So let's go over a couple of the typical seller avatars that we see. These are people, I've got a couple of examples here. These are people who are your typical sellers that like to sell on subject-to. So let's start with Sam. Sam wants to sell his home. He needs to sell his home for whatever reason. Maybe he's moving for a job, whatever the case may be, but he doesn't have any equity or he has very little equity. He's gotten a few offers, but after fees and commissions, he's going to have to come out of pocket in order to get the home sold because of the lack of equity and the fees and commissions that are going to come out of that purchase price. So he's a little frustrated. He's had to turn down several decent offers, but he just doesn't have the money to come out of pocket. He would be a good, a good seller to work with on this. Shelly, she is our pre-foreclosure example that I talked about a minute ago. She can't afford the payments on her home. Her credit is terrible. She needs a fast sale, immediate relief from payments. Again, she would be a great fit, and she would also benefit from, you know, that credit boost that we were talking about for a while. Her credit is just going to shoot right up as soon as someone takes over her property subject to. And then let's talk about Ara and John. They are, we're actually working on a deal currently for a similar situation. The couple's going through a divorce. Ara and John are going through a divorce. It's a rough, rough divorce. They don't want to talk to each other. They don't want to sit down and have negotiations. They just want to get the deal sold and don't, they're ready for the next chapter of their life. Ara and John are a great candidate for subject to. And I do want to mention that, you know, we do a lot with low to no equity homes, but in situations like Shelley or Ara and John, we can make this work even if they have plenty of equity. There's, there's always workarounds that we can kind of tailor the solution to fit their needs. That's what I love about doing this so much. So let's talk about the sales process. So first, kind of as I was just saying, we sit down and we talk about what the seller needs. We're not out here blasting offers every day. We are specifically working one-on-one with sellers to try to figure out what their needs are and how we can meet them and kind of satisfy some of, some of their struggles a little bit. So once we've done that, then we go ahead and kind of similar to the normal process, we open escrow. Any type of due diligence is conducted on, on either end. And then the title for Phase 3, the title is transferred over and we take over payments immediately, or the buyer takes over payments immediately. This happens approximately 2 to 4 weeks from Phase 1 when we agree with the terms negotiated. I did want to also mention at this point, in reference to taking over the payments immediately, we do typically— a lot of buyers will typically set up a mortgage servicer as well. So the mortgage servicer will every single month go in, take the money out of the buyer's account, and credit it towards that mortgage. The seller gets a statement every single month confirming that that happened. And it also reduces the risk a little bit so that, you know, if something happens, you know that payment's still being made. All right. So the question on everyone's mind. What happens if the buyer defaults? This is actually, it's kind of best-case scenario in a way. Because the seller gets to foreclose on the property. And typically the foreclosure process, it's a lot shorter to get into that foreclosure process than it is for a normal bank. So it's usually a little bit quicker than, you know, the nightmare foreclosures that take multiple years. It's a lot quicker than that. They also get to keep all of the payments that the buyer has made up until that point. In a lot of scenarios, there are repairs or updates being made to the home Of course, that's going to benefit the seller if they have to go in and foreclose on the home. And then the seller is able to, of course, take back over the property, which means they get to keep all those payments, they get the property, they get to keep the repairs. It's kind of a win-win for them. And in a lot of cases, like in the pre-foreclosure case, arrears are being caught up too. So it really benefits them. But another key thing to kind of consider here is, you know, my husband and I, we're buyers, for example. We spend a lot of money getting into these deals. And so it doesn't make sense and it doesn't benefit us to default. So just kind of keep that in mind. Like, this is not something that we're going to just get into willy-nilly. And that's what most buyers are going to going to feel like as well. But of course, you should always do your due diligence when working with someone. Second most common question, what about the due-on-sale clause? So you're probably all familiar with horror stories of banks calling notes due when they hear of something like this happening. But we have some strong protections in place that kind of mitigate this risk. So step 1, from the very beginning, we set everything up properly. We work with a transaction coordinator to make sure the paperwork is perfect. This kind of prevents it from coming up on the bank's radar, especially these larger banks that do a lot of volume. They kind of basically, they, they lend and then that file goes in a file cabinet and they never look at it again unless unless there's like, it's going into pre-foreclosure or something. So it's, it's actually less common than you would think that this comes up. Step 2, let's say the bank does get wind of it and they ask about it. We're honest and upfront. We tell them exactly what happened. We show them the paperwork. We walk them through it. 9 times out of 10, they're fine with this because they're still getting their their mortgage payment every single month. And they say, okay, we were just wondering what was going on. And that's kind of the end of it. Um, step 3, this is extremely rare. I've heard statistics are like 1 in every 5,000 cases. The bank may say they do care and they're not okay with this. If that's the case, what we do is we actually deed the property back over to the seller. And then we set up a lease option. So we say, you know, we will purchase in X amount of months once the mortgage is paid off. So that's another way that we can kind of mitigate that risk. The bank's okay with that. The property's back in their name, and it's just a matter of time until we can refinance and buy that, that seller out and kind of get everything all cleaned up. All right, the next common question that we get is, can the seller qualify for another mortgage? The answer is typically yes. Um, every lender is a little bit different, so I say this with a grain of salt, but for most lenders, 75% of that mortgage payment that the buyer is making can be counted towards their DTI within the first year. After the first year, the entire payment can be counted towards their DTI. Additionally, this is where that mortgage servicing company comes in. So by setting up that mortgage servicer, there is a clear paper trail of every single payment that has been made, the date that it's been made, and we're able to provide a full history. Additionally, if you work with someone like us, for example, when the time comes that the seller is ready to qualify for another mortgage, we are more than willing to work with them on that and try to come up with ways that we can show what that— show to that lender what that relationship looks like and how we're making the payments so that it doesn't count against their DTI. But again, typically most lenders will write that off after the first year, and 75% of it is written off immediately, basically. So how does this benefit you as the agent? Take a quick drink. First off, you're selling more homes. So I'm sure you have all seen or been in a situation where the seller just can't sell a home traditionally, either because they have little or no equity, or it's just kind of maybe they're asking too much, or it's kind of one of those weird scenarios where you just can't get the home sold. So we're able to come in, find creative ways to get those homes sold that would normally turn into expired listings, thus saving some of your listings. So we're offering again, a fresh solution when traditional methods have not worked. The other thing is that I love about this is you are differentiating yourself from the market. It's no secret that there are a ton of real estate agents in this world these days, you know, especially after COVID, everyone wanted in. And now with the market slower, it's a lot more competitive. So I think this is where it's gonna be really critical for agents to come in with an open mind, be kind of creative, and think about the ways they can help their sellers meet their needs in a way that's not, not always the traditional way. So of course there's a time and place for the traditional offers, but I think the ones that aren't able to be flexible, those are the agents that are getting left behind. So when should you call a subject-to specialist? What situations should you say, hmm, maybe I need to loop someone in? So I'm going to kind of recap what we've already talked about a little bit. So apologies if this is redundant, but let's say you, you should just go ahead and pick up the phone call, pick up the phone and call us if the seller has no equity or little equity. They're facing foreclosure and behind on payments. They're stressed out about that. They want to walk away without bringing any cash to closing. So I say that like, basically they want to reduce their costs associated with selling is really what I'm hitting on with that point. Or if you have an expired listing that's about to expire and you don't have any good offers on the table. Regardless of whether we do subject to, we have a lot of tools in our tool belt that we're able to, to bring forward and come up with creative solutions to help you sell those deals. So definitely give us a call in that situation as well. The other thing is too that I did want to mention is that we make sure that your commission and referrals are protected. Um, I can't say tell you exactly what that looks like because it's on a very case-by-case basis, but we do make sure that you get paid. We work with you from the very beginning, and we're upfront and honest about what that pay structure looks like. And therefore, you're able to kind of make a decision on whether this fits for not only the seller but for you as well prior to anything going under contract. So it could look like a referral fee or finder's fee. It could also look like more like your standard percentage-based commission. Again, it's really case-by-case basis depending on what the situation looks like. So again, um, my husband and I are buyers. Uh, we also network with buyers all over the country. Um, our business partner is based out of Tualatin is where he's based out of, and he does deals like this all the time. He's done dozens of deals. I think last count he had 29 doors that he had done this way. In addition, we have a network that we tap into regularly for help on, on deals, on closing things, for questions, for resources, advice. Maybe there's a deal that we're not interested in for whatever reason that we can help you find a buyer for. That's what I really love about working with someone like us, is you're not just working with us, you're working with people all over Oregon. And then with that, you're also working with people all over the country. So it's a really strong network full of people who have a ton of knowledge in this industry, and it's really, really beneficial to make sure things are done right the first time.