“Subject to the buyer obtaining a loan”. “Subject to finding a buyer to option the property”, etc. etc. etc. This thing has come across my desk on many more than one occasion, generally emanated from, and originating with, the great minds of the of “No Money Down”, “How to Steal A Fortune In Real estate” information purveyors and, more than I would like to acknowledge, written in contracts submitted to me to purchase my listings.

    Let’s start at the top: “Subject to”, as defined by the law dictionaries, means: Liable, subordinate, subservient, inferior, obedient to, governed or affected by; provided that; provided; answerable for.

    The beauty of this is: if the deal in question ever goes sour and winds up in front of the judge, the “Wise Ol’ Owl” will thoroughly remove all confusion and define “Subject To” and I’ll guarantee the deal writer (generally a real estate practitioner and or his client who is dependent upon the “”subject to” deal) won’t like what the judge is about to say. Their, also surprised, attorney most likely won’t either.

    Notice that definition of “Subject To” does not imply termination. Termination has to be spelled out. For instance if a buyer cannot get the loan he made his offer “subject to” doesn’t mean he is no longer “Liable” to purchase the property. (Notice that word “Liable”?) To “confuse” issues is sternly looked down upon by the judge and any one who instills confusion will be flatly ruled against, either by the judge demanding the fallacious one to perform (complete the purchase), pay restitution, fines, or all the above.

    On the seller’s side the buyer made an offer to purchase the property, it remains the buyer’s responsibility to pay for it, whether he gets a loan or not, the buyer remains liable to complete the purchase. All the buyer really said is: Mr. Seller, I commit myself to buy your property and I’m letting you know that I want to get a loan to have the “cash” to pay you off. The buyer did not say, “If I cannot get a loan, we have no deal”. The seller said, I don’t care where you get my money, just pay the tab. At the beginning point of the offer the seller can ask for a guarantee that the buyer can get a loan, ask for immediate cash, or tell the buyer to hit the road, or ask whatever other genius thing that can be conjured up.

    Now let’s make a simple fix and remove all confusion, doubt and a “nightmare” day in court: “Continent upon” means; something that may or may not happen upon the occurrence of something else, such as a date, time, appearance of a qualified buyer, or some other event even such as getting a loan. I see lights turning on all around the world!!!! Kind of clarifies things quite a bit doesn’t it? "Subject to" really says I’m getting a loan (and this is how I am going pay the amount I agreed to pay), while contingent upon says I’m going to try and get a loan and if I can’t we have no deal and both of us walk away without recourse against anybody.

    With respect to loans say it this way: “Contingent upon buyer obtaining and qualifying for a loan of $XXX,XXX.XX, or less, for 30 years at the prevailing rate of interest at close of escrow”. (At the prevailing rate, is a left over from the 70s when escrows were pulled one hour before closing because the interest rate increased and the lender wanted more interest, money, in the note, so the buyer walked. Hear Ye! Hear Ye! This is June 2004 and those days are coming again! I remember many of the good old days??? In those good old days many a buyer was also pushed off the table after they had signed their final(?) closing docs, because they no longer qualified).

    Ain’t it great?

See Ya In The Jungle Tiger!!!

Ron “Boots” Stacey Your Friend.................