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With mortgage interest rates climbing from 3% to 8% over the last couple of years, housing affordability and security have become increasingly strained nationwide. According to a recent analysis, foreclosure filings in the United States have increased 3% quarter over quarter and 9% year over year.
Distressed homeowners are finding relief through strategic property deals with real estate investors through a mechanism commonly referred to as “subject to.”
What Does “Subject To” Mean in Real Estate?
“Subject to” in real estate refers to a situation where a property has an existing mortgage or lien that remains in place even after the property is sold to a new owner.
When a property is sold “subject to” an existing mortgage or lien, the buyer takes over ownership of the property but does not assume responsibility for the debt associated with the existing mortgage or lien. The original borrower remains responsible for the mortgage, but the new owner takes possession of the property.
With increased home foreclosure filings, there is increasing availability of “subject to” properties available for purchase in today’s market. Both distressed homeowners and real estate investors can benefit from considering a “subject to” property deal.
If the existing mortgage on the property is at a lower rate (e.g., 3%), acquiring the property “subject to” that mortgage allows the investor to benefit from the lower-interest rate environment, thus saving money on financing costs compared to obtaining a new mortgage at the higher 8% rate. There is also the potential for higher investment returns if the property’s potential appreciation or rental income outweighs the costs associated with the property.
Lastly, acquiring a property “subject to” an existing mortgage also requires limited upfront capital compared to obtaining…