Yes, this HUD-1 is a standard form that title/escrow companies and attorneys use to build settlement statements. Please note lines 203 and 503. This Code of Federal Regulation (CFR) document includes the instructions to fill out the HUD-1. Page 396, second paragraph states: "Line 203 is used for cases in which the Borrower is assuming or taking title subject to an existing loan or lien on the property." The IRS also provides guidelines for taxation of subject to transactions in Publication 537. You will also see Subject To as an option in section B of the Idaho Realtors RE-17 Financing Addendum.

We set up a third-party servicing company to withdraw money from our account and make direct payments to the mortgage. This protects the seller since the third-party servicing company not only makes sure that mortgage payments are made on-time, but also show proof that payments are being made by the buyer when the seller goes to wipe out their debt-to-Income (DTI) on this property with a lender.

We create a promissory note and all-inclusive deed of trust which formally obligates us as the buyer to the debt and protects the seller in case of default. This is the same protection that banks have when issuing loans. If we were to default on the loan the deed would be transferred back in the seller’s name and the seller would inherit the property back and benefit from any down payment, loan principal paydown, improvements made to the property, and appreciation that the property has seen. The seller could then sell the property again for even more profit if they didn’t want to keep it.

The seller would not be responsible for any repairs or maintenance on the property after the deed is transferred. The person responsible for any repairs or maintenance would be whoever is on the deed of the property. Since the seller’s name would only remain on the mortgage and the deed would change into the buyer’s name, then the buyer would be responsible for all of the repairs and maintenance.

For Conventional and FHA loans, we pre-pay 1 month of a mortgage payment upfront and lenders typically are able to wipe off 75% of the seller’s DTI right then. After 1 year of on-time payments, 100% of the DTI should be removed from the seller’s name. All you will need to do is show your lender that on-time payments are being made by us for the past year.

If you have a VA loan, the amount you can purchase on your next home would depend on how much entitlement you have remaining. If you didn’t have enough entitlement for your next property, then you can use your proceeds from the “Subject-To” sale towards the down payment needed for your next home. VA Entitlement Loan Limit Calculator

If we structure the transaction as a lease purchase we are able to wipe off 100% of the seller’s DTI immediately.

Since the loan is left in the seller's name, when the on-time payments are made, the seller’s credit score is beneficially affected. The on-time payments to the lender gets reported back to the credit bureau and can significantly help improve the seller’s credit score and can save the seller more money down the road when they apply for financing.

This rarely happens, but if the bank sees the deed has been transferred, they could request the remaining loan balance be paid in one lump sum because they believe the property has been sold (hence the name due on sale). We could do any one of the following:

1. We have spoken to lenders before to describe the situation and they have rescinded their request because they ultimately care about their notes performing.

2. Refinance the property with another lender.

3. Deed the property back to the seller, and then execute an Executory Contract (aka Agreement for Sale or Land Contract depending on the state). The seller would still possess the deed but ownership rights would transfer to the buyer. The deed would fully transfer only when the terms in the contract are satisfied (e.g. when the loan balance is paid off in full).

We will have our insurance agent replace the seller’s current policy with a new policy under our name and with the seller added as an additional insured. So not only are we on the insurance policy but the seller will be on the insurance as well and be protected. We would swap the utilities into our name.

We are not buying the seller’s property solely based on the value of the real estate, we are primarily buying the property based on the seller leaving the existing financing in place. With interest rates skyrocketing into the 7%+ range, a lower interest rate provides valuable insulation from a short/medium term market decline.