Most people think the risk in a subject to real estate agreement lives in the mortgage. Due-on-sale clause, right? That’s the argument at every investor meetup I’ve walked into, and I’ve been to a lot of them.<\/p>\n
The mortgage didn’t cause the problem I’m about to describe. The title history did.<\/p>\n
Picture this deal. Seller has equity. We take the property subject to the existing mortgage. Our plan is a wrap. We’ve got a buyer lined up, the spread makes sense, and everything looks clean on paper. The kind of deal I’d run again tomorrow.<\/p>\n
Then our buyer goes to do title.<\/p>\n
The title company finds a disabled veteran tax exemption on the property. Improperly applied. It had been sitting on that parcel for four years, credited against the tax bill every year. When the county catches it during our buyer’s title search, they claw all of it back. Every dollar. We’re looking at roughly $16,000 in back taxes on a deal we thought was done.<\/p>\n
That’s a title history problem, and nobody catches it until someone actually pulls the chain.<\/p>\n
We had a title policy on our acquisition. That’s the only reason this story doesn’t end the way you’re imagining right now.<\/p>\n
Title insurance stepped in and negotiated the clawback down. I’m not going to promise you every policy handles every situation identically, because deal facts matter. What I know for certain is that without our policy, that $16,000 sits on us with no recourse.<\/p>\n
This is why my position on sub2 deals with real equity is ABSOLUTE: we get the title policy. Every time. The premium is a rounding error on a deal worth protecting.<\/p>\n
You take title to the property while the seller’s existing mortgage stays in place. You make the payments on their loan. If our plan is a wrap, we create a new note with our buyer at a higher interest rate, collect the spread, and service the underlying debt.<\/p>\n
It’s completely legal. Our team uses it regularly. In a market where buyers can’t qualify for conventional financing but sellers have equity sitting in their property, it’s one of the most useful structures I know.<\/p>\n
Have you ever read a title commitment all the way through? Not skimmed it, actually read it? The risk on a sub2 deal isn’t limited to the mortgage. Title history can carry surprises that compound over years before anyone notices: prior exemptions applied to the wrong parcel, undisclosed mechanic’s liens, errors in how a homestead classification got recorded. The longer a property sits under the same ownership, the higher the chance something got applied incorrectly somewhere in the chain.<\/p>\n
That’s not pessimism. Our team has just closed enough of these deals to know where the surprises live.<\/p>\n
First: investors skip title insurance to save money on closing costs. I understand the logic on a tight deal. But if our acquisition has real equity in it, skipping the owner’s policy is exactly backward. We’re protecting the asset that makes the whole structure worth doing.<\/p>\n
Second: investors execute a wrap without fully understanding what they’ve built. A wrap mortgage is a seller-financed instrument where I’m the middleman. I’m servicing a note and a loan at the same time. That means my paperwork has to be right: servicing company, interest rate, balloon terms, default provisions. Get any of it wrong and the structure falls apart in year three, not at closing, when it’s hardest to fix.<\/p>\n
I teach my all-encompassing, 100% correct do’s and don’ts of subject-to’s and wraps for a reason. “It depends” isn’t an answer for the core mechanics. There’s a right way to structure these.<\/p>\n
Pull title before you close, and read what comes back. Exemptions, open permits, easements. If your title company doesn’t walk you through what they found, ask them to.<\/p>\n
On any deal with meaningful equity, treat the owner’s title policy as part of your cost basis from day one. A lender’s policy protects the lender. Our policy protects us. Those are different things.<\/p>\n
Have a plan for when something unexpected shows up mid-deal. In our case, the plan was the policy. That’s structure.<\/p>\n
The deal I walked you through above closed. Not clean, not fast, but closed. That’s what the right infrastructure looks like on a sub2 deal.<\/p>\n
This is the kind of deal the Black Sheep Convention is built around: Texas operators teaching what they are doing right now, with no pitch at the end. 2026 in San Antonio was our biggest since COVID, with 105 agents and investors in the room and online, real AI taught hands-on and worksheets people took home.<\/p>\n
The next one is October 15, 2027 in Dallas–Fort Worth. Save the date<\/a>.<\/p>\n <\/p>\n
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