Is Subject-To Real Estate Investing Illegal - powered by Happy Scribe

Hey guys, welcome to the channel and thanks for joining me for another video on Subjectto Real Estate investing. If you're new to Subjectto real estate investing, at some point in the future you're going to be told that what you're doing is illegal. Even if you've been around the block a few times and haven't had someone say say this to you yet, eventually it will happen. So in this episode, I want to share a little bit of knowledge that you can carry with you to every single seller appointment that you go on from here on out so that you're never caught off guard when this topic comes up. So stay tuned.

Hey guys, before we get started, please go ahead and click the subscribe button and then click the bell button to get notified every time I post a new video. Let me go ahead and kick this off by giving you some background information on a potential deal that I had been brewing in my local market. This was several years ago, but it was a huge lesson for me at the time. I got a call from a seller who had his property on the market but wasn't getting any traction because of some it needed some finish work and he was moving to Utah the very next day. He had just gone through a divorce and he couldn't afford to keep the house and he was really starting to fall behind on payments.

So I went and met with him at the house. We struck a deal so that I could take the deed and start making payments on the house. Everything looked great. But later that evening, he decided to pay his neighbor one last visit. His neighbor was across the street and the neighbor was a retired real estate broker.

So he explains to this real estate broker exactly the deal that we struck and then she proceeds to want to get in touch with me and talk with me about it. So he gives me a call and passes the phone to her. She basically just let me have it. She let me know that she had been a broker for 30 plus years and she was 100% sure that what I was offering her neighbor was definitely illegal and that in all of her 30 years of brokering real estate, she had never heard of such a thing. I'm going to save you the gory details.

It was pretty ugly, but needless to say, I did not get this deal under contract. And it was because of this, quote, experienced broker who scared my seller into declining my offer. Unfortunately, that seller's home just a couple of months later went up for auction on the courthouse steps. I was not able to save the seller from foreclosure. Now as I said, this was several years ago and I had already done two or three subject Two deals at that point, so I knew that this was definitely a possibility.

To take the house subjectto, but I didn't have a rebuttal to the broker's allegations at the time. So what I decided to do from that point on, I was going to get the knowledge that I needed to arm myself so that I can go out and get these deals under contract and close these deals. I was not going to let anybody talk a seller out of a deal again, especially when it could help them as it could have in this situation. So that's exactly what I did. I set out on a quest to find out exactly the legalities of doing Subject Two deals.

And what I found was quite surprising, really. The kicker is that this information is readily available to anybody who just goes out and searches for it. But today I'm going to save you the trouble. I'm going to show you what you need to do to arm yourself for the next time someone tells you that buying a house subject to the existing financing is illegal. So I've got some stuff pulled up on the computer.

Let's jump over the computer and take a look. Okay, here we are. Up on my screen is the federal Government's department of Housing and Urban Development. That is so hard for me to say sometimes it's a tongue twister. But this is the HUD One settlement statement.

And you can see up here we've got the OMB approval number. Let me jump over to where exactly I pulled this from. And I pulled this from right here. If you go out and you do just a Google search for Hudson settlement statement and then maybe put well, I'll show you the exact search terms that you can use here to do HUD. There it is right there.

So I've already typed it. HUD One Settlement Statement. And then you do Site HUD Gov. So this is actually going out and searching nothing but HUD dot Gov. It's the only site that's going to go out and look for these search terms on.

So we hit enter, and here we go. You'll see that all of these results are from HUD Gov. So I'm going to click on the second one right here. It says HUD One Forms. And this brings me back to the page that we were just at.

And so what I want you to do is download first, download the instructions. I've already downloaded this stuff, but download the instructions and then download the actual settlement statement itself. And I've already got these pulled up here. So let's go ahead and get back to where we were. So on the HUD One settlement statement, before I get too far into this, I realized that if you're using a title company, a lot of title companies these days do not use the Hudson settlement statement.

And that's okay. Most of them use what's called the Alta. Alta is the American Land Title Association. They also have provisions inside that document for doing subject Two deals. But we're going to deal with the Hudson settlement statement because my line of thinking, the way that I view this is that if the federal government has codified and they have regulations on the books for doing subject two deals, then it just can't be illegal.

I mean, they're well aware of it. They have provisions for doing subject two deals. And so that's what we're going to focus on. I'm going to stay on this HUD One settlement statement. Just know that the Alta also has provisions for doing subject two deals on its standard statement as well.

So we are going to be dealing with specifically we have the buyer side of the transaction on the left side and then we have the seller side transaction on the right, just like any standard closing statement would have. But we're going to be focusing in on two particular lines on this HUD One settlement statement and that is going to be line 203 and line 503. So let's just read what the HUD One instructions say regarding line 203. I'm going to read it line for line. And remember, this is on the buyer side.

So this would be if you're purchasing a property subject to this would apply to you in your subject to deal. Line 203, according to the US. Government, is used for cases in which the borrower, you or the buyer is assuming or taking title subject to an existing loan or lien on the property. And we already know that a lien is recorded against the property. If there's a mortgage, the mortgage or the deed of trust is a lien that's recorded against the property.

It's important to know that they also separate out liens here because you can purchase a property with any existing lien on it. I happen to be talking about right now, I happen to be talking about the Deed of trust. That's what we're focusing on. So line 203 is used for cases in which the borrower is assuming or taking title subject to any existing loan or lien on the property. Okay?

So that's on the buyer side, let's go ahead and let's do a search for line 503. And this is going to be on the seller side. Here's what the federal government has to say about subject to on the seller side. Line 503 is used if the borrower is assuming or taking the title subject to existing liens which are to be deducted from the sale price. So all that means is if we're talking about line 203.

Line 203 is used in cases which the buyer has taken the title subjectto an existing loan or lean. This amount is deducted from what is due from the buyer at closing. So if you agree to buy a property for $100,000 subject to the existing loan or an existing loan rather of say $80,000, the contracted sales price up here is $100,000. You are going then to online 203 deduct $80,000 because you're taking this loan subject to this amount. So your balance, if we didn't fill out anything else, if these two items that I've filled in here were the only equations that we were working with, you would be responsible then to that seller for the remaining $20,000.

Okay? But if you contracted this at, say, if it's at $80,000 and you're just taking over the loan, that's it. You owe the seller $0 at that point. So I hope that makes sense. This amount is deducted from what's due from you to the seller at closing.

And this is going to go along with other items like earnest money here, taxes, assessments, all that good stuff. Line 503 on the seller side is the amount that's deducted from the proceeds that are due to the seller at the sale. So these two lines should match. And then, of course, I'm not filling out this entire form. I just wanted to give this to you as an example.

What I recommend that you do is when you create your toolbox, or your toolkit for presenting offers to sellers, is to have the Hudson Settlement Statement with you in your closing package so that your seller can see it. They understand that this is not something that you're making up out of thin air and that you're just trying to steal their house from them. Some people really do believe that, as hard as that might be to believe. So that's all I have for this video. I want to just get this out there and really make you aware that this does really exist.

Buying a house subject to can be a great way to bail a seller out of a tough situation. It can help you. It can keep the mortgage current, so it keeps the lender happy. By the way, I'm not an attorney, so I'm not trying to give you legal advice here, but I can tell you for sure that I have done several subject to deals in multiple states. Not all 50 states, but I have done them in several states, and I have not had any kind of issue of buying a house subject to the existing financing.

All right, guys, if you want to know more about subjectto real estate investing, head on over to my website@subtoompire.com. The link is in the description along with a link to a really indispensable calculator that I use to evaluate every single subject to deal that I do. I'll also throw the link to the Hudson Settlement Statement and the Hudson Settlement Statement instructions in the description below. And if you liked video, click the like button and go ahead and check out our other videos on the Let's Talk subject to YouTube channel. Have a great one.

We'll see you next time.