How Does a "Subject To" Purchase Work in Real Estate?

A "Subject To" purchase is a real estate transaction where the buyer takes ownership of a property "subject to" the existing mortgage, meaning the loan remains in the seller's name, but the buyer takes over the payments.

1. Understanding the "Subject To" Method:In a "Subject To" deal, the existing mortgage remains in the seller's name, but the buyer gains the property's title and takes over the monthly mortgage payments. The buyer does not formally assume the loan but continues paying the mortgage on behalf of the seller.
2. Why Use a "Subject To" Strategy?This method can be attractive to buyers who may not qualify for a traditional loan, want to avoid a large down payment, or wish to bypass the lengthy mortgage approval process. It's also beneficial for sellers who want to avoid foreclosure or sell their property quickly.
3. Risks Involved:The primary risk is that the lender may call the loan due (due-on-sale clause) if they discover the title has transferred. The buyer must also ensure the mortgage payments are made on time to avoid damaging the seller's credit.
4. Process of a "Subject To" Purchase:To execute a "Subject To" purchase, the buyer and seller agree on terms and sign a purchase agreement. The buyer takes over the mortgage payments while the title is transferred to their name. An attorney or real estate professional should be consulted to handle the paperwork and ensure compliance with local laws.
5. Benefits of "Subject To" for Buyers:Buyers can purchase a property without securing a new loan, potentially saving on closing costs and interest rates. It can also provide access to properties that may not be available through traditional channels.
6. Benefits of "Subject To" for Sellers:Sellers can relieve themselves of a burdensome mortgage payment, avoid foreclosure, and possibly receive some equity or cash from the buyer at closing.