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What is Subject To Real Estate?

Subject To Real Estate – What You Need to Know About a Subject To Mortgage

In this short article, we will explain subject to real estate and strategy deal structures and why this may be the perfect way to sell your property, while getting the price in terms that work for you and your buyer.

A subject to real estate transaction is a creative financing technique that allows a seller to sell a property without having to make any repairs, make up any missed back payments, or pay any commissions or closing costs by simply allowing the buyer the ability to take over the property subject to any existing loan staying in place. In other words, a seller can sell, and a buyer can buy without any new bank financing needed – a subject to mortgage.

Since there is already a loan or loans on the property, subject to real estate transactions are becoming increasingly popular in today’s economy, as getting traditional financing from banks becomes more challenging. Here’s how it works when a homeowner wants to sell his or her house but has trouble because they are behind on payments or have little to no leftover equity, causing them to have to come out of pocket to cover commissions and closing costs and repairs.

Subject To Real Estate Transactions

The seller can get creative and overcome these challenges by allowing the buyer to take title of the property subject to their existing mortgage or mortgages on the house staying in place. It works just like a traditional sale with some small nuance’s

1. The buyer and the seller sign a purchase and sale agreement with all the terms and conditions of the sale.

In the same way you would with any other real estate transaction. The purchase and sale agreement states that the buyer will be taking title subject to existing loan staying in place

2. The buyer and seller will sign all the necessary disclosure documents explaining the entire transaction.

So, everyone is aware of the benefits and risks associated with this type of transaction.

3. Three at closing, the buyer will cover all closing costs.

Any necessary back payments needed to bring the loan current and any other fees associated with closing on the property. Also, the buyer will get all necessary insurances, including title and property insurance, to cover all potential future issues.

4. Once the title has transferred and the closing is complete, the seller will move out of the property and the new buyer will be responsible for paying all future mortgage payments.

Why Would You Agree to a Subject To Real Estate Transaction?

Now, there are four amazing reasons why a seller would consider allowing someone to take title subject to

1. It allows you to sell quickly.

Since no banks are involved the buyer qualification process is simple and fast. No long-drawn-out lending processes. Also, sometimes in a traditional sale if your property needs extensive repairs like a new roof or AC unit or the property has termite damage, banks won’t lend until major issues are repaired. With a subject to real estate transaction, you won’t have to make any costly or time-consuming repairs.

2. You don’t have to manage a rental.

A lot of times if a seller can’t sell because there is little to no equity in the property, they default into turning the house into a rental. This can be costly and a pain in the butt. Selling via subject to mortgage is a great alternative to dealing with tenants and toilets.

3. You get the price you want.

Typically, the reason you would allow someone to take title subject to mortgage is because you were getting the price you want for the property instead of selling it at a big discount and possibly having to come out of pocket.  In exchange, you work with your buyer on giving them good terms and everyone comes out a winner.

4. It’s a simple, fast way to sell a property.

Real estate investors are easy to deal with as opposed to owner occupants. All the paperwork will be handled by the investor or the closing agent. No commissions or closing costs are typically associated with this type of sale, and since there are no banks involved, the approval process is as easy as a few conversations between you and the buyer.

Subject To Real Estate Transaction Downsides

On the flip side, there are two major downsides to allowing a buyer to take title subject to.

1. The first one is if the buyer stops making the mortgage payments. 

Since the loan is technically still in your name, this will negatively affect your credit score, especially if the issue is not caught quickly and remedied. The good news is that we have certain processes we put in place to ensure this type of thing doesn’t happen, such as using a third-party servicing agent where all payments are made, and receipts are given. This ensures that no missed payments occur without your immediate notification. Plus, since we have never been foreclosed on or missed any payments on any of our obligations, you can rest assured that our track record speaks for itself.

2. The second downside is in the event you are selling this house to move to another house and plan to get a new mortgage.

In this scenario, you need to check with our new mortgage underwriters as to whether you qualify for having two mortgages at the same time. Otherwise, you may want to rent for a little while.

Other than that, by getting creative and participating and helping the buyer get financing, a subject to real estate transaction can quickly become a huge win-win for everybody involved.

Subject To Real Estate Transaction Example:

Here’s a quick example of a subject to real estate transaction. Let’s say Sarah wants to sell her property that was built in the 1980s that she has owned for five years. The property is worth $100,000, but she still owes 90,000 on the mortgage and she is stressed and having trouble making the payments and is now to payments behind. She knows that selling and downsizing is the right thing to do, so she can get back on her feet. But all the offers she has received so far are way too low and she’s getting frustrated because most investors are trying to buy her house for $50,000 or less because it needs some repairs.

That’s when an investor such as Onyx REI comes and asks Sarah if she would be interested in getting creative and allowing us to take title subject to the mortgage. Sarah says she’s interested, and we ask Sarah to see her a mortgage statement. Sarah digs one up and we see that Sarah has a monthly payment of $875, which covers principal interest, taxes, and insurance (PITI). We see that rents in the area are $1250 a month and think Sarah’s house would make a great rental property once it’s fixed up a bit.

We would make Sarah a creative offer to buy Sarah’s property for $90,000, which is the remaining balance of what she goes. We would give Sarah $2000 and move out money to pay back the two missed payments, make the loan current, and take over her property subject to the existing mortgage staying in place with no repairs needed, and we cover all closing costs. We then show Sarah all the disclosures and paperwork, and once Sarah felt comfortable with us, she agrees to the deal.

This is a win-win for both Sarah and Onyx REI, and it only happened because we and Sarah took the time to look at a creative way to sell a property.

We Can Structure Subject To Real Estate Transactions for You

At Onyx REI we are problem solvers and solution finders. Not every property is suitable for a cash offer for several reasons. We are all about professional help and if you want to do subject to real estate transactions, we are here for you!