Is What You Teach Legal For Realtors?

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“Hi, Joe. I like everything you say. You seem so down to Earth and I feel like I can trust you. But I’m a little nervous about it all. When I told another agent in my office about doing deals “Subject-To”, they told me it was illegal. I just want to make sure that I don’t get into trouble. Is it legal to buy a property “Subject-To” and can you tell me why?” – Katie, Atlanta, Georgia

Joe: Katie, yes, it is legal. We’ve done it hundreds and hundreds of times, maybe thousands of times over the years and my students have done it even more than that. We take these properties and we have them deed them to us. It’s perfectly legal.
 
Joe: If you look at your HUD statement, and I think it’s on line 223, it says ‘Loans taken subject to’ and so there’s actually a term for it. It’s recognized on the HUD statement. We don’t usually HUD statements when we do these closings but it is something that is recognized by HUD. So it’s not illegal. We’ve never had anybody get in trouble for it.
 
Joe: I’ve had investors that have come through my program that haven’t treated people honorably or ethically and they’ve gotten into trouble, so if you treat people honorably and ethically, you usually won’t have a problem with any of this stuff.
 
Joe: Now, also keep in mind, I’m not an attorney; I don’t even play one on TV, so if you ever have questions about this stuff, go ask your attorney. Almost every board of realtors has an attorney of record for the entire board and you can go and ask them legal questions. Take this to them and show it to them. I’ve talked to so many attorneys about these contracts because I’ll take it to a seller and the seller will say, ‘Maybe I should talk to my attorney.’ And I’ll say, ‘Let’s get him on the phone right now,’ and we’ll get him on the phone and we’ll talk to him and I’ll explain it to him.
 
Joe: A lot of times, the attorneys have never heard of “Subject-To” before. They don’t know how it works and they’ll be a little confused by it at first, but as soon as I explain how it works and what we’re doing, they’ll say, ‘Oh, yes, that makes sense. That’s not a problem.’
 
Joe: So, is there some risk to the seller with Subject-To? Yes, there is. It puts you in control of that property. It makes you owner of that property. But you have to also look at the risks that the seller is willing to take.
 
Joe: A lot of times, sellers are willing to take this risk because they don’t have better options. They either have the risk of going into foreclosure if they sell it to you and you default and they can’t trust you, or they have the certainty of going into foreclosure if nobody buys their property and they can’t sell it to a realtor because they don’t have the equity and they can’t sell it on their own because it’s so difficult for FSBO’s to sell and they probably can’t even lower the price because they don’t have equity.
 
Joe: So, this is a great way to sell properties that don’t have a lot of equity and it helps solve a lot of people’s problems. Just to add to this, not only is it legal but I believe it’s ethical and moral and it solves problems for sellers. I can’t tell you how many times – and I’ve done my whole investing business not going out and screwing some old lady out of her inheritance for her kids by taking out all of the equity out of her property – I’m not trying to beat people up on this. What I’m trying to do is to structure it favorably so that it makes sense for me and for someone to buy it from me.
 
Joe: So when we buy these properties Subject-To and they’ve got these loans hanging over their head and they know they’re going into foreclosure, and you keep them from going into foreclosure solve the problem for them, literally (and I know it sounds kind of hokey) – literally people will come to closing in tears, thanking us for how much we’ve done for them and solving their problems.
 
Joe: We had the same experience with buyers who buy rent to buy who couldn’t have otherwise bought a house other than the fact that they were buying it through us, and they come to closing thanking us as well and saying, ‘What you have done for my family is incredible.’
 
Joe: So this is a good feeling. This is very much like Habitat For Humanity. Habitat For Humanity puts people into homes. They get them into their own places – people that couldn’t have otherwise gotten a home. It’s a great charity and they do great things. By the way, if those people don’t continue to pay their monthly payment (because they’re not given those homes – they’re required to make payments on them) – if they don’t continue to pay for those properties, Habitat For Humanity takes it back and puts it into somebody else’s hands. So they’re creating responsibility and they’re creating a home for people and giving people a second chance that maybe have bad credit or that don’t qualify.
 
Joe: So, hopefully that answers the question. This is a good way to be doing business. Thanks.