What is "Subject-To" transaction?

A Subject-To transaction is a creative way where real estate transfers from one owner to another without paying off liens attached to the property. Typically, the mortgage will stay in the sellers name and the house will transfer over to a new buyer who promises to make payments on the seller's behalf.

The Risks:

Seller will need to pay off their debt BEFORE the transfer of property occurs. If that transfer happens and the debt is still in place, the bank has the right to call the loan due (the due on sale clause). However, we have handled a number of these transactions, and we have not had an issue. If you sell to a bad operator who misses payments, it can be incredibly difficult to get the property back since the owner is no longer on the deed which can damage a seller's credit or cause a foreclosure. For these reasons, are team has stopped working standard Subject-To transactions.

The Benefits:

If the seller is in pre-foreclosure, struggling to make payments on their home, or has to bring money to the table to sell it traditionally, these types of transactions can be helpful to the seller's financial future. If structured correctly, the buyer will bring enough funds to the table to make up for any late or back payments, will take over the property at loan value even if the property's actual market value is much less than that, and in some cases can put some money in the seller's pocket.

What is a "Seller Finance" Transaction?

Seller finance transactions upgrades the seller to a bank like status. Straight seller finance transactions are possible when the seller has 100% equity in their home - meaning no liens or mortgage attached to the property. The owner of the home can finance their homes equity to a buyer, structuring a deal where the buyer pays the total agreed on price to the seller over time in increments. A seller and buyer will sign a promissory note agreeing to pay a certain amount for the house, at a certain rate, over a certain time period. At settlement the note with be recorded as a mortgage or deed of trust (depending on the state) showing that the purchaser owes the seller that amount of money.

The Risks:

If a bad operator stops making payments, the previous seller will have to follow state guidelines to foreclose on the individual to get the house back.

The Benefits:

Sellers who are unable to sell their house for top dollar on the open market or don't need all of their equity out immediately can make more money over time using this structure. It is also passive income with no obligation to manage tenants, fix repairs, pay utilities, ect. It is as close to hands off as you can be in real estate and still make money!

What is a "Hybrid" Transaction?

As the name suggests, a hybrid Transaction is a combination of selling a property subject to the existing mortgage AND financing the any remaining equity left over above the loan balance. These transactions happen when a seller does not need all of their equity out immediately and is comfortable receiving those funds at a later date.

The easiest way to understand this transaction is with a visual. If you have a current mortgage of $100,000 but you want to sell your home for $150,000. In a hybrid transaction, a buyer would take over your $100,000 mortgage, then pay the $50,000 remaining balance in installments or one large lump sum over time.

The Risk:

Just like the risks for subject to and seller finance, the bank may be upset you sold the property without paying off your debt completely and enact the due on sale clause and/or you may get an operator who stops paying your current mortgage or the seller finance not and you would have to work on foreclosing on that buyer.

The Benefits:

Seller's are able to sell their homes for more money using this strategy. We see these transactions a lot with homes that have been sitting on the market at a high price, sellers usually are able to sell at the price they want with the strategy even though the market is suggesting it may not be worth that amount.

A lease option in real estate is a contractual agreement where a tenant leases a property with the option to purchase it at a later date. It's a creative financing strategy often used by buyers who may not be able to qualify for a traditional mortgage immediately or by sellers looking to attract a broader pool of buyers. The arrangement has two key components:

1. Lease agreement: The tenant agrees to lease (rent) the property for a specific period, usually 1-3 years. The lease functions like a standard rental agreement where the tenant pays monthly rent to the landlord/seller.

2. Option to purchase: The tenant has the option, but not the obligation, to buy the property at a pre-agreed price before or at the end of the lease term. To secure this option, the tenant typically pays an option fee, which is often non-refundable. This fee can range from 1% to 5% of the property's price. Sometimes, a portion of the monthly rent may also be credited toward the purchase price (often called "rent credit").

A land trust is a legal arrangement where the ownership of real estate property is transferred to a trustee for the benefit of one or more beneficiaries. The land trust allows the beneficiaries to retain control over the property while keeping their identity and ownership private. This strategy is a unique way to complete a creative finance transaction and provides the seller a strong layer of protection against their bank or bad operators. Feel free to reach out to our team to learn more.