June 18, 2024


Mad about real estate

Protecting Yourself in a Subject-to Transaction

In real estate investing, you always have to watch your back. It is just a simple fact of life. Even if everyone involved in a deal loves, trusts and has “history” with each other, you still much make sure that you are all legally protected not just for the security of the immediate deal, but for your security in the future.
For example, when you do a subject-to transaction, you need protection from beginning to end. Many real estate investors actually take the time to file paperwork at the courthouse before they have closed on the house to indicate that they have an interest in the property. This prevents any other parties from cutting them out of the deal that they have been working on building. Once closing is set, you will need to also establish how responsibility flows – particularly if you are working with another investor. It is important to factor in how the parties will deal with situations like tightened finances so that if one party ends up with a heavier burden than planned, they can be compensated accordingly. This is particularly important in the case of subject-to transactions in the current market, since great deals are relatively easy to find, but they can require extended monthly payment periods before you find someone to purchase the property from you.
You will also need to determine how you will sell the property. As a savvy real estate investor, you know that you need multiple exit strategies. It is important to work all of these strategies out and get something in writing between all investing parties so that you know how compensation will be arranged and you have prior agreement on the selling methods. In addition, you need to insure that once the property is sold, you cannot be held liable for actions taken by the new owner. This is a frequent oversight in subject-to transactions, and while it usually does not create a problem, if the buyer ends up defaulting on the loan then you can encounter serious legal trouble if you have not structured your agreement correctly. Be sure that when you do sell, the new owner is liable directly to the previous or original seller, not to you.
Of course, these examples are educational, and this is in no way legal advice. You must handle every subject-to transaction with the proper legal care in order to insure a safe and productive deal for everyone.
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