Quick Answer
A subject-to transaction occurs when a buyer takes title to a property subject to the seller's existing mortgage. The buyer makes payments on the existing loan, but the seller remains ultimately responsible to the lender. The lender's due-on-sale clause may be triggered, and the title company must carefully handle the recording and disclosure aspects.
Important Legal Notice
Subject-to transactions involve significant legal risk. The due-on-sale clause in most conventional mortgages allows the lender to accelerate the loan if the property is transferred without the lender's consent. This can result in the full loan balance becoming due immediately. This article provides general educational information only and does not constitute legal advice. Consult qualified legal counsel before entering into any subject-to transaction.
How Subject-To Works
In a subject-to transaction, the seller conveys title to the buyer. The existing mortgage stays in the seller's name, but the buyer makes the payments. The buyer's deed is recorded, showing the new owner, while the existing mortgage remains on the property. For a detailed comparison with other structures, see wraparound mortgage vs. subject-to.
Title Company Role in Subject-To
Not all title companies will handle subject-to transactions. The title company must be willing to issue title insurance with appropriate exceptions for the existing mortgage and must coordinate the transfer. 1st Option Title has experience handling subject-to transactions, including the complex title and recording requirements. Read our guide on how title companies handle creative finance transactions.
Due-on-Sale Clause in Texas
Most conventional mortgages, including those in Texas, contain a due-on-sale clause. This clause gives the lender the right to demand full payment if the property is transferred without consent. In practice, not all lenders enforce this clause, but the risk exists. For a deeper discussion, read about the due-on-sale clause in creative finance transactions.
Texas Homestead and Community Property
If the property is the seller's homestead, Texas constitutional protections may affect the transaction. Similarly, if the seller is married, both spouses must typically join in the conveyance due to Texas community property laws. These issues require careful attention from the title company and legal counsel.
FAQs
Is subject-to legal in Texas?
Yes, subject-to transactions are legal in Texas as a transfer of ownership. However, the due-on-sale clause in the existing mortgage may give the lender the right to accelerate the loan. Neither party should proceed without understanding this risk.
Will a title company close a subject-to in Texas?
Some title companies will handle subject-to closings; others will not. 1st Option Title has experience with subject-to transactions and can discuss your specific situation. Contact our team to discuss your deal.
Does the seller still owe the loan in a subject-to?
Yes. The seller remains ultimately obligated on the loan. The buyer makes payments, but if payments stop, the lender can pursue the seller for the balance.