One of the things that distresses us about our industry is the amount of wrong or incomplete information available to investors. Some myths block what otherwise would be a great deal, while others would have you believe that a bad deal is actually great. For example, we encourage purchasing homes “subject-to” the existing mortgage as an option to finance the purchase of an investment property. This means that title to the property is transferred to the purchaser, but the loan remains in the original borrower’s name with payments made by the purchaser.

Let’s take this opportunity to dispel 5 of the most common.Myth #1: Buying A House “Subject-To” The Existing Mortgage Is Illegal.Absolutely not true! Most mortgages have a “due-on-sale” clause which states that if the house is sold without paying off the mortgage, the lender has the “right” to call the entire loan due. The key here is that they have a “right” not an “obligation”. In other words, it’s their choice. We asked several attorneys in town who represent lenders to see if they had ever heard of a bank call a loan due because of a sale.

Why? Because banks are in the money business not in the real estate business. If they call the loan due, and it goes into foreclosure, they have a poor performing loan on the books (for which they have to increase their reserves), they incur additional costs, and they inherit a property. Or, they can just accept the timely payments from the new owner. Which makes more sense?Myth #2: Buying “Subject-To” Is Complicated And Requires A Ton Of Paperwork.The truth is that all you have to do is write it into the Purchase and Sales Agreement (PSA). We write it in right next to the Purchase Price.

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