I get a lot of questions from my students, especially in our Facebook group, when it comes to subject to or creative finance.
One question I do see a lot is if there is an official sale in a sub to transaction.
For anyone who doesn’t know what subject to is or what seller finance is, it’s basically under the umbrella of creative finance.
Creative finance is a way to purchase property without credit, licenses, or cash.
So what do I mean by that?
Here’s an example - let’s say that I find a house and I call the owner and I go, “Hey, I want to buy your house. I want to fix and flip the house; can I have the opportunity to buy the house from you?”
Now, the owner likes that idea. They might say, “I would love to sell the house to you, Pace, but unfortunately, I don’t have any equity.”
This happens all the time. Even in a soaring real estate market, this can happen; however, we’re able to purchase on sub to deals every week.
So essentially, I go to the seller and say, “Hey, no problem. I know you think you can’t sell the house or you think just letting the bank take the house back is the right way to go.
"Instead, why don’t you let me take over the bank payment and you keep the bank loan in your name?”
This boggles people’s mind, because I am basically taking over ownership of the house and they just don’t understand what I’m going to do.
So let’s go over what all of that means.
What is Subject To Real Estate?
When you have a home, there’s actually two things that are attached to it:
A debt
A deed
The first thing attached is a debt.
That debt is listed at the recorder’s office; where I live, this office is a government entity here in Maricopa County.
Your county will also have a recorder’s office, you can just search for ‘recorder’s office’ and then the county you live in.
A recorder’s office is usually within a physical building that records all the documents, on all real estate transactions that occur.
Documents Needed for Subject To
These documents will show that an owner owes a debt to - let’s say Bank of America - and that owner owes $300,000 and that’s what we called a debt.
A misconception people have is thinking that Bank of America owns their house or owns the property because they gave money to purchase that house.
The reality is that Bank of America does not own the house at all.
They have no rights of ownership.
The right of ownership is what is tied to the second thing on the property - the deed.
A deed is the ownership of the property. So if my name is on the deed, then I have ownership of the property.
Think about it this way - if I go to the store to buy groceries and I pay with an American Express card, American Express does not own those groceries.
I’m the owner of the groceries because I have a receipt for them and I have physical ownership of my groceries.
I simply owe a debt to American Express for the money I borrowed to get those groceries.
Similarly, in a subject to transaction, I essentially am transferring ownership from the seller over to myself.
Is Subject To Legit?
Subject to transactions happen in every single state, all 50 states, all the time.
The seller agrees to sell through subject to and the ownership - ie, the deed - gets transferred to me or to my team.
So is this legit and legal?
Here’s a property that I closed on - 2720 Norris Sterling Ave in Mesa, Arizona. This property was sold on November 26, 2018 for $372,000.
Today, the house is worth $595,000. I bought this property with $0 out of my pocket.
I started making payments on this property to the owner’s Wells Fargo bank account, but the title and the deed transferred to me.
In fact, if you pull up the recorder’s office, you’ll see there’s a recording date.
There’s a transaction and we closed escrow.
When I closed escrow, I went to the title company to sign the documents and get the deed in my name.
Nobody checked my bank records, nobody checked my credit history, nobody asked for tax returns.
And you can see there is an official transaction with the recorder’s office. A lot of people don’t even know this stuff is public record.
Is subject to legit?
Are there actual transactions?
Literally with a Google search and going to an assessor’s website or recorder’s website, you can see the ownership and proof that I own the property on Norris Sterling Ave.
You can watch the process of me pulling up the recorder website, showing the actual transaction and all other information on this purchase in the video below.
The answer to whether subject to purchases have transactions, it’s emphatically yes.
If you want to learn more about subject to, seller finance, or you're interested in using creative finance in real estate, come join us at Subto!