Subject-to transactions are a creative financing strategy where the buyer purchases a property "subject to" the existing mortgage. The deed transfers to the buyer, but the loan stays in the seller's name.
How Subject-To Works
The buyer takes title to the property via a warranty deed or special warranty deed. The existing mortgage remains in the seller's name. The buyer makes the mortgage payments going forward. The seller benefits from debt relief, and the buyer acquires the property with existing (often favorable) financing.
Why Investors Use Subject-To
Subject-to transactions are valuable when the seller has a low interest rate that's better than current market rates, when the seller is behind on payments and facing foreclosure, when the buyer wants to acquire property with minimal cash outlay, or when the buyer cannot qualify for traditional financing on the property.
Title Company Considerations
Subject-to transactions require careful title work. The title company must understand the structure and properly document the transfer. Issues to address include due-on-sale clause risk, title insurance considerations, and proper deed preparation.
Risks to Understand
Both parties should understand the risks. The seller's credit is still tied to the loan. The buyer could default, hurting the seller's credit. The lender could invoke the due-on-sale clause. These risks should be discussed with a qualified attorney.
1st Option Title has extensive experience with subject-to transactions. We understand the structure and close these deals properly.