SUBJECT TO CLOSING: Step By Step Explanation how it works!
Welcome to MyRealEstateDOJO with Mr Investor, this is Mike. Gang, yes you already know and today’s subjects about the mechanics of the subject to and what happens at closing because you need to understand this process to make money and then to to be able to explain to your seller during the negotiation phase why you sell you the house with none of your money and none of your credit okay.
So now what is the subject to, simply put, buying a property subject to existing mortgage means that you buy a property without using any of your own money and you dont use your credit okay. Refer back to one of my videos about what is a subject to to learn in more detail of what is it subject to because it’s a very powerful way to build wealth in America.
Alright, now that I defined what a subject to is, let’s see closely what happens at closing on a subject to. Alright, now what happens is as a whole seller you go out there you advertise, you find a motivated seller, you explain to him that you can sell his house subject to its existing mortgage and then once you guys get into an agreement, you take that purchase agreement to a closing company or escrow company or an attorney’s office and at that time um the closing will happen which means you as the buyer will show up and the seller will show up to the escrow company and you guys going to run through a marathon of paperwork and sign it.
So now let’s talk about what happens in that closing, okay. So you both show up and number one thing that happens at closing when you buy a property subject to is that the seller conveyed the deed to the buyer which is you, in this case, as an investor and you and on the other hand promise to the seller that you will make their monthly payments, okay. Now its very important that you pay attention, you’re able to explain to your seller, what happens here, the seller’s underlying mortgage or underlying note or underlying lean stays in place these are all the same things refer back to my general terms of real estate.
So again at closing, the seller gives you the title of the property, you become the rightful title owner of the property, you sign a note to the seller promising him that you’ll make monthly payments on the property and then at the same time you sign a deed of trust to the seller that you pledge the property for collateral in case you default and when the transaction is finished, when the dust clears, when the closing is over, the seller has given you the property, you’re the rightful owner of it. However, his underlying note or the lien or the loan stays in place so after closing you step into the seller’s shoes. You make the monthly payments month after a month, you cash out the loan, okay, or till you sell the property and they cash out the loan for the seller’s note therefore this is very important to pay attention.
This one, anybody does the seller’s credit, that house mortgage or the house loan is still on the sellers credit okay so it’s very important that you make the monthly payments month after month okay and your ability to explain to the seller that that mortgage is going to be still under their neck or the responsibility and even though you bought the house, when they do their credit report it’s going to show up as a liability for them, okay, its very important that you explain that to the seller but basically the mechanics of a subject to at closing is everything’s the same as traditional transaction one of the few things that’s different is that the underlined note never gets cash down okay you just step into the seller’s shoes and make the monthly payments okay.
In summary after the dust clears, three things will happen in a subject to closing, one the seller will give you the deed so you become the rightful owner of the property to the sellers loan or the sellers underlying mortgage or the seller’s underlying lean or stays in place you just start making the payments to the seller, the seller will get some money or the seller will bring and give you some money, now go back to my videos about how to strip three ways to structure subject to deal to make money regarding option number three which is the part where the seller will get some money or he or she will have to bring you some money.
So in a nutshell simply put, after the subject to closing you’re the rightful owner of the property, the seller is still reliable for the property however you have solved their problem and you start making payments on the seller’s property as you promised and make sure you keep your word tonight. We talked about what happens at a subject to closing and the mechanics of it.
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