What Does Taking Title “Subject to” Mean?
by DiAnna Jackman Senior Escrow Officer/Branch Manager Chicago Title Agency

When you finally find that perfect investment property and run your numbers, be sure you read the entire contract before you sign. Many investor contracts will indicate that the buyer is to pay all closing costs. This can include title insurance, escrow fees, recording fees, etc.What I find being missed in contracts that come across my desk are when the buyer is purchasing certain items to be taken “subject to”. ┬áMost times it is Taxes and HOA. Please be sure you are including these items in your due diligence BEFORE you sign the contract. If a contract calls for any item to be taken subject to, typically your title company will not be checking on these items because you have contractually obligated yourself to take on that liability. It also means that item will not be covered on your title policy. If there are back taxes or HOA, these items have now become your obligations because they were considered an exception. It is also important to know that not only the amount due but any fee or charge to transfer the HOA into your name has become your obligation. Once you have closed the transaction and become the owner of the property, most HOA guidelines require you to inform the HOA of the transfer and supply them with paperwork to prove you are the owner. Be sure you are getting familiar with the HOA rules and regulations before you close as some have age restrictions and something called right of first refusal. It would be a shame to but a property only to find out that the HOA will not allow you or your potential target buyer to live there. Some HOA’s have large fees called community enhancement fees that can be as much as 1% of the sales price. This could be a big hit to you P&L.A very obvious and typically negotiated subject to item can be a loan or lien on title. Be sure you are getting everything you need to deal with this item down the road. First and foremost you should be given a copy of any financing documents such as the promissory note and deed of trust. You should NEVER agree to take a property subject to VA or FHA loan. Although most loans have what is know as due on sale clauses in them, the VA and FHA loans have more specific language and guidelines to adhere to. Once you have read the financing documents for that lien, you can make an educated decision about taking on that liability.As the deals become few and far between and we need to move fast, we tend to forget to do our due diligence to be sure we are not causing any added expense or liability to our bottom line.Remember, Chicago Title is here to help with anything you need and just a phone call away!