There are a lot of things you need to know about before you can do a subject to deal. The first of which is you have to know what the term actually means. Subject to is by definition simply a disclosure to any exceptions to a free and clear title. You also have to understand that the terms that you create with the seller in your deal, has nothing to do with the lender.
There are a number of court cases that have established that subject to deals can’t be considered fraud. Another important aspect of subject to deals is that many investors use a unique structure called a Land Trust to get them done. A Land Trust is a special version of the trust that only holds the title of a property and is a simple way to keep the title out of view of the public.
The biggest risk of a subject to deal is for the lender to call the loan on the property, but in all the years that I’ve known of investors doing these kinds of deals I’ve only seen a couple get called. It’s rare but it is a risk that you have to be ready for. Keeping that in mind, one of the most difficult parts of your subject to deal may be just finding an attorney that understands the Land Trust and will help you close the deal correctly.
For most subject to deals there is a loan balance on the property and attorneys will usually tell you that you need to pay off the loan first, but that’s just not true. There are ways to structure the deal without paying off the existing mortgage, which is the main focus of the Land Trust class, an event I hold a few times each year.
If you’re going to be a good investor, why would you want to come up with the money to pay off the first mortgage if you don’t have to? As long as you understand the risks, doing a subject to deal is an established way of getting a deal closed. So find an attorney that understands a Land Trust and what you’re trying to do if you’re going to do subject to deals.