Investors looking to buy property are often skittish about properties that contain a "Subject to" clause pertaining to an existing mortgage. Most often, though, this is the reaction of newcomers to investing, and is based on their lack of knowledge of what it entails. Actually, this type of property transaction can be most beneficial in that it can be a great time saver of not having to arrange new financing.

When an individual obtains a loan using his or her property to secure the loan, the borrower is responsible for the repayment of the debt. So, if that property that has been used as collateral does not settle the debt, the balance owed is still the responsibility of the borrower.

If you as an investor decide to purchase a property and do not arrange new financing, but just assume the loan against the property, you then assume all of the responsibilities and terms that go with it. In the past however, this has not always turned out to be a viable deal for the lender, and as a result the loans have been restructured to include a clause agreement that the loan can be called due upon sale. Simply meaning that now that the collateral for the loan is no longer going to be in possession of the borrower, the lender wants the loans paid off before transfer of the collateral. This is not always a definite, but is an option reserved by the lender.

The state of the economy plays a big factor in the lender's decision. If the initial loan was made the interest rates were low, now the opportunity is there to demand payment for the loan and retrieve their capital to reinvest it at higher interest rates. That is, of course, if the interest rates are booming. In a poor economy this is not the case, so often the lender will not call the loan in for full payment. In fact, many times the lender does not even realize that the loan has been transferred to someone else.

In the case of a subject to existing mortgage, it works somewhat differently in that the deed of the property becomes transferred to you, but not the debt of the loan. You have the responsibility of making the mortgage payments and should you default and end up losing the home your liability ends there.

So, as an investor to what advantage does this serve you? You want to concentrate on sellers that have run into financial difficulty and are at risk of losing their homes. They are anxious for a buyer. It is important that you explain the "subject to" concept to them. They must understand that they will benefit from restoring their credit rating because of your prompt payments, and they are at no risk because you would not put yourself in a position of losing your investment.

It is important that if you are going to be taking advantage of the "subject to" realty opportunities that you obtain viable real estate education that is going to teach you the many different approaches of being able to set up something in the deal that is comfortable and reassuring for all parties involved.