“Sub2” or “Subject To” is a real estate strategy where a buyer takes over a sellers existing mortgage, but the mortgage remains in the sellers name. This allows the buyer to take ownership of the property without having to go through traditional loan processes or large down payments.
The buyer in a Sub2 deal takes over the sellers existing mortgage, continuing to make payments according to the original loan terms.
While the buyer takes over ownership, the mortgage remains in the sellers name. The mortgage can be cleared from the sellers Debt to Income Ratio at closing with a lease option through trust acquisition.
Sub2 deals can be advantageous for investors as they bypass traditional financing hurdles and allow for faster transactions. Sub2 deals can help many sellers either net more money than they would have selling traditionally, avoid foreclosure or help them get out of a property or note that they cannot afford to pay anymore.
There is a risk that the lender may call the loan due if they discover that the property has been transferred. Even if the loan is assumable, there is still the due on sale clause risk. A safe, effective and legal workaround is to sell the property through a trust.
All Sub2 deals here at Xenia Group are through trust acquisition. This ensures a smooth transaction for both buyer and seller. This also will not trigger the due on sale clause. This is how we are able to clear the sellers DTI ratio and transfer ownership of the property to the buyer.