You may hear the phrase “subject to” from a buyer. What is that? Is that a good idea or a bad idea?

There can be advantages to selling your house “subject to” but what does that mean? It means the existing mortgage stays in place. The title is transferred to the new buyer. In that situation, there is no need for the buyer to qualify for the loan. They previous owner has sold the house “subject to” the mortgage. This sounds like a quick and easy fix for those that are behind or don’t want to continue making mortgage payments. All is good. Well, maybe not!

When you sell your house subject to the mortgage the mortgage stays in place IN YOUR NAME. The new owner simply continues to make the payments. But what if they stop paying? The original borrower is STILL responsible for the debt. If the new owner defaults on payments, the seller is contacted by the lender. They want their money. This can wreck the sellers credit and they may not even be aware there is a problem for a short time.

Due on sale clause: This is a clause in most mortgages where the lender can “call” the loan due if the title has been transferred. When they call the loan, they are calling on the original borrower to pay the loan off in full. Now. Not months later. Not years later. Now! So the seller goes to the new owner asking them to pay off the loan in full. What happens if they do not have the cash to pay it in full? Too bad, because the loan is in the previous owners name. The bank is demanding payment in full from the seller, not the new owner. Surprise!

Subject to is not assuming the loan by the new owner. Assumption of the loan means the new owner has assumed the loan, and taken over payments with the lender’s permission. Most banks today do not let people assume the loan. The want the buyer to apply for financing, run credit checks, look at debt to income ratios, and then determine if that borrower is credit worthy for the amount of debt.

If you decide to sell subject to the mortgage, you need to make sure the new owner has the ability to pay off the loan if it is called. You need to make sure they have the ability to make payments timely to avoid them wrecking your credit. Personally, I would never sell my house subject to the mortgage. I do not want to be responsible for a mortgage when letting someone take over my property.

When you work with us, we do not ask sellers to take over their mortgage subject to. We pay cash, the old loan is paid in full at closing, and the seller has no worries.

So, the bottom line is subject to is a fast way to get title transferred, but always a risk to the seller. KNOW YOUR BUYER WELL if you choose to go that route.

Fill in the form on our page, or give us a call at 239-200-5600. We are ready to serve you.