Subject-to real estate transactions allow investors to acquire properties while leaving the existing mortgage in place. This is not a formal assumption of the current owner’s mortgage. Instead, the investor buys the property and makes the mortgage payments on the current owner’s behalf. In exchange, the current owner moves on to another home, confident that their payments will be made and their credit rating improved and maintained.
At My Land Trustee, we specialize in facilitating these transactions in Florida efficiently and securely using a land trust. Here’s an overview of how our company manages subject-to purchases:
1. Contracting for a Subject-To Purchase
When you purchase a property subject to its existing mortgage, the first step is to enter a contract with the seller. Florida law requires the foreclosure to be reinstated at closing if the property is in foreclosure. This means you’ll need to obtain and pay any reinstatement fees, which you can get from the seller or the foreclosing attorney.
Once the contract is in place, send it to your closing agent and provide a copy to us for our records.
If you need a contract form to use, one is available in the Investor DocKit.
2. The Closing Process
At closing, the title agent conducts the usual title and lien searches to confirm the property’s status. This search will determine if the property has additional liens beyond the mortgage(s) being assumed in the subject-to purchase.
At this point, the seller will execute a Florida land trust, and our company, TRSTE LLC, will serve as the trustee. Initially, the seller is the beneficiary of the trust, but they will assign their beneficial interest to the investor at closing. This assignment is conditional on the mortgage being paid, meaning that if payments are missed and the mortgage defaults, the property’s control reverts to the seller.
3. Protecting the Seller and Buyer
The conditional assignment acts as a safeguard for both parties. The seller is protected from potential damage to their credit score in case the buyer defaults on mortgage payments. In return, the buyer gains control over the property through the trust so long as the mortgage remains in good standing.
4. Ownership and Privacy
The property title is held in the land trust for as long as the mortgage remains unpaid. The investor’s name does not appear on public records, providing privacy for the transaction. Any liens or judgments against the trust beneficiary will not attach to the property, and vice versa.
5. Documentary Tax and Public Records
Our company pays the documentary tax directly to the Florida Department of Revenue. The county tax records show the property as being placed into a trust for nominal consideration, meaning the transaction details—such as the amount paid—remain private.
Please note, however, that this is still a change of title, and any homestead or other exemptions on the property in favor of the current owner will be removed. This means that next year’s tax bill could be significantly higher than the current tax bill. So take this into consideration when doing due diligence on the transaction.
6. Essential Documents at Closing
At the closing table, several key documents are executed, including:
– Limited Power of Attorney: This grants authority to deal with the lender regarding any issues with the property.
– Seller Acknowledgment: Ensures the seller is fully informed about the transaction and consents to it.
– Escrow Account Assignment
– Online account access information
– Title Affidavits
7. Insurance Requirements
You’ll need to secure a new insurance policy on the property, as the seller’s insurance will terminate upon the transfer of the deed into the land trustee. This includes securing premises liability insurance to comply with the lender’s requirements. We have recommended insurance agents familiar with land trust policies who can assist in this area.
Note that the insurance will likely be higher than what the seller is paying now, because it will no longer be an owner-occupied residence and will instead be an investment property. Also, ensure that the named insured is “TRSTE, LLC, Trustee of the … Land Trust.” The investor-beneficiary should be named as an “additional insured,” and – of course – the current lender(s) on the property must also be listed as additional insureds.
When a claim is paid on the policy, the claims check will be paid to the trustee and all additional insureds. Typically, it will be endorsed by all payee and then either deposited through our trust account or to the lender’s escrow account, depending on what the lender directs.
8. Using a Third-Party Servicer
Some investors prefer using a third-party servicing company to manage monthly mortgage payments. This service collects rents (if applicable) and ensures the mortgage is paid, with confirmation provided to both the buyer and seller to ensure transparency.
Alternatively, the parties can agree that the investor has full online access to the mortgage account while the current owner retains access too. That way, both parties can login at any time to see the status of the mortgage account with the servicer. Also, the limited power of attorney that the current owner gives the investor at the closing provides the investor authority to correspond directly with the current owner’s lender about the loan.
9. Further Assistance
We offer comprehensive support throughout the subject-to purchase process, and additional resources are available on our website. If you have questions or need assistance, you can reach out to us at any time.
For more information, visit our website at www.mylandtrustee.com or contact our law firm, Aspire Legal, at www.aspirelegal.com. Our website also provides a breakdown of fees for these services.
By working with My Land Trustee, you can ensure that your subject-to transactions are handled professionally and with the security provided by a land trust.
We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.
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Our mailing address: PO Box 547945, Orlando, FL 32854-7945
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Our physical address: 1901 West Colonial Drive, First Floor, Orlando, FL 32804
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