Real Estate Opportunities - Buying Subject to
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Buying a home “subject to” may sound complicated to you even though this method is not a new one. The method is easy to apply and is often profitable as well. To purchase a home “subject to” essentially means taking up the property with the existing mortgage on it. No change comes in the terms of the note formed with the lender.
Many investors are not well aware of the aspect of “due on sale clause” and thus keep away from buying “subject to” properties. According to the sale clause, the lender can declare the whole note due if you could not meet any term of the initial agreement. If the loan turns out to be nonperforming or nonpaying the lender has the right to foreclose you and confiscate the property. This unnerves the buyers and sellers of the home and raises concern about the “due” condition. The lender also has to pay the price in such a case. He has to undergo punishment imposed by the Federal Government for having "bad debt" or nonperforming loan.
If you buy a -home “subject to” the existing mortgage, you have either to lose the property by foreclosure or pay the mortgage. You have no personal liability to bear the expenditure if you do not wish to. The foreclosure will not figure in your credit record and you are not legally obligated for anything. However, the moral obligation may lie on your shoulder.
You are likely to make money by buying “subject to” homes in many ways. The seller pays you for buying the property. You can also gain from the difference in rates between buying and selling price of the home. Further, tax benefits such as interest deductions and depreciation may also yield profit. By buying “subject to” homes you are in full control of the property and if you are adept enough it is likely to yield you profit as well.
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