Tuesday, May 30, 2006

Subject To - Clauses and Objections

Subject-To Contract Clause:
Since you probably won't get to examine the note prior to closing, make sure it says what the seller tells you...
"Price shall be $____________ payable as follows: buyer to take over payments on seller's first mortgage loan to _(lender)_ with a total balance not to exceed $____________ at (fixed/adjustable) interest rate not to exceed ____% with ___ payments remaining."
Also, if you can get the seller to obtain an estoppel letter from the lender ahead of time, that will be beneficial. If at the closing or during a title check you find undisclosed loans (liens, 2nd mortgages) - the seller should either pay them off at the closing, or you can walk.
If the seller objects to that you might not make payments and the loan will go into default (a valid concern) you can do two things:
1) Use a servicing company that will collect and distribute money to lender(s).
2) After sale, create a quit claim deed giving the property back to seller, and have that escrowed with directions to distribute it to the seller if you fail to pay after 30 days. Of course, you will want some period of time (say 10 days) to allow you to 'make good' and/or prove the payments were made. {Note: this requires some help from an attorney; there are implications regarding foreclosure law and other laws when escrowing a deed (at least in NJ).}

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