I just got off the phone with an owner that did a subject to transaction 3 years ago with another investor. (She and her husband allowed an investor to take the deed to their home “subject to” the underlying debt @5.75% 30 year fixed). In exchange for $10,000 the owners were given an all inclusive trust deed (AITD) that “wrapped around” the underlying bank financing. The investor/buyer signed thereby agreeing to make the payments each and every month. The owner was just notified that NO payments have been made since May of this year. Now, the underlying bank wants to foreclose on the property. When she called the investor he said he intends to keep collecting the rents (YES it has tenants) until he makes back his $10,000 and has no intention of deeding the property back to them.

After explaining what they did RIGHT and what they did WRONG the owner has agreed to assign the AITD to me. (it wasn’t easy, she is NOT happy with investors right now) I will then foreclose out the defaulting investor and protect the owner from foreclosure. 

This kind of behavior on the part of the investor is just one reason why sellers are scared of doing subject to deals. I also think this kind of story contributes to crappy legislation that is intended to “protect” sellers from shady investors. 

PLEASE…. If you make a deal with someone then HONOR the terms even when it means you might lose some money.