How do I write a subject-to offer to an owner behind on payments?

An owner who's behind on the mortgage is the classic subject-to seller. The loan has a low rate, the owner has little cash, and the clock is running. That's also why this offer goes wrong more than any other: the numbers move every month, and some states treat buying a house in foreclosure as its own kind of deal.

Here's what the offer has to cover. This is not legal advice. Use a real estate attorney in your state before you sign anything.

Start with the reinstatement figure, in writing

Before you name a price, get the number it takes to bring the loan current. Ask the servicer for a reinstatement quote good through your target closing date: missed payments, late fees, and any foreclosure costs so far. The servicer will only give it to the borrower or someone the borrower authorized, so have the seller sign a third-party authorization and send it with the request.

Don't build the offer on what the seller remembers owing. Fees stack up every month the loan is behind, and the figure the owner gives you is almost always the number from the last letter they opened.

What the offer has to say

• The price, in pieces. The existing loan balance you're taking subject to, the reinstatement amount you'll pay to bring it current, and any cash to the seller. Write each one down separately so the seller can see where the money goes.
• Who pays the arrears, and when. Usually you, at closing, straight to the servicer. Say what happens if the figure goes up before closing.
• That the loan stays in the seller's name. In plain words. The seller's credit rides on your payments from now on.
• The due-on-sale clause. That the lender can call the loan because the house was transferred, and what you'll do if it does. What the clause lets a lender do.
• The loan check. A contingency that the balance, rate, payment and loan type match the seller's latest statement and the servicer's figures.
• The sale date. If a foreclosure sale is scheduled, the closing has to beat it with room to spare. Put the date in the offer.

The state laws for buying a home in foreclosure

Several states have laws aimed at investors who buy from owners in foreclosure. They can require specific contract language, set out what you must disclose, and give the seller time to cancel after signing. California's Home Equity Sales Contract Act, for one, lets the seller cancel until midnight of the fifth business day after signing, and bars the buyer from recording the deed or paying the seller until that window closes (Civil Code 1695.4). New York's Home Equity Theft Prevention Act (Real Property Law 265-a) builds in its own cooling-off period. Maryland, Illinois and Minnesota, among others, have their own versions.

Those rules can decide your timeline. If the seller can cancel for five business days and the sale is in seven, you're closing with two days to spare. Ask your attorney which law applies before you write the offer, not after.

How fast these sellers actually decide

The foreclosure filing is public, so every investor watching the county sees it the same week. The county records show most of these owners don't sell right away. Across 99 counties, of every 100 owners with a foreclosure filed, about 3 sold off-market within 3 months, about 7 within 6 months, and about 13 within 12 months. A house picked at random sold at about 1.2 per 100.

So the offer you write in week one is often the offer they say yes to in month six, after a postponement, a loan modification that didn't stick, or a plain decision to get out. Keep writing to them. See when foreclosure owners sell in your county.

Before you sign

1. Reinstatement quote in writing, good through closing.
2. Signed third-party authorization on file with the servicer.
3. Latest mortgage statement matches the servicer's figures.
4. Sale date confirmed with the trustee or court.
5. Your attorney has checked your state's foreclosure-purchase law.
6. The seller has the due-on-sale risk in writing and has had time to read it.