Understanding 'Subject To' in Real Estate

'Subject To' is a phrase commonly used in the real estate sector referring to the assumption of mortgage conditions as they exist. This term is abbreviated as 'Sub2' in the real estate community.

Definition of 'Subject To'

In real estate transactions, specifically in the context of buying property, 'Subject To' means purchasing a property subject to the existing mortgage. It is a strategy where the buyer takes ownership of the property but the loan remains in the seller's name. The buyer agrees to make payments on the existing mortgage, even though it is not legally transferred to their name.

Formula for 'Subject To'

There is no specific formula for 'Subject To', but understanding the concept involves recognizing the existing mortgage terms which remain unchanged and binding under the new ownership.

Example of 'Subject To'

Consider a scenario where a homeowner is struggling to make mortgage payments and is at risk of foreclosure. A buyer can step in and purchase the property 'Subject To' the existing mortgage. This means the buyer will now make payments, thus relieating the original homeowner from the burden but the mortgage will remain under the original owner’s name. This can be a quick way to transfer property without formally assuming the mortgage.

The Importance of 'Subject To'

Becoming involved in a 'Subject To' transaction can potentially benefit both a buyer and a seller. For the seller, it presents an opportunity to alleviate the responsibility of a mortgage they can no longer afford, without going through foreclosure or harming their credit significantly. For the buyer, it provides a means to acquire property at potentially below market value and without the need to qualify for a new loan, which can be particularly advantageous in tight credit markets.

Conclusion

'Subject To' transactions, while beneficial in many cases, carry certain risks and complexities. Both parties should thoroughly understand the terms and seek professional advice to ensure legal and financial protections are in place. Understanding 'Subject To' transactions can offer real estate investors a unique opportunity to expand their portfolios and tap into creative financing options.