Subject To

In a Subject-To Transaction, the buyer purchases a property and takes control of the property subject to the existing mortgage, without paying off the current loan at closing. This type of transaction allows the buyer to assume responsibility for the mortgage payments, but the seller remains liable for the loan. The buyer does not formally assume the mortgage or refinance the existing loan; instead, they begin making the payments on the seller’s behalf, with the existing loan still in place.

Key Details of a Subject-To Transaction:

  1. Existing Mortgage Remains in Place: In a Subject-To Transaction, the buyer is not assuming the mortgage. The existing mortgage remains in the seller’s name, and the buyer agrees to make payments on the loan. This means the seller remains ultimately responsible for the loan, and the mortgage lien stays attached to the property.
  2. Seller’s Continued Liability: Although the buyer is responsible for making the payments, the seller remains personally liable for the mortgage debt until it is fully paid off or refinanced. If the buyer defaults on the payments, the lender can still pursue the seller for the remaining balance.
  3. Title Policy and Exceptions: When purchasing a property in a Subject-To Transaction, the title policy issued will include an exception for the existing mortgage. This means that while the title policy will ensure clear ownership of the property, it will not cover the existing mortgage or any related risks associated with it. This exception is a crucial aspect of a Subject-To transaction, as it protects the title company from liability should the mortgage become an issue later on.
  4. Potential Risks and Benefits:
    • Risks: Sellers should be aware that they continue to be legally bound to the mortgage. If the buyer fails to make payments, it could impact the seller’s credit and result in foreclosure.
    • Benefits: Buyers may benefit from potentially acquiring a property with favorable loan terms or lower interest rates, particularly if the seller’s mortgage is at a better rate than current market conditions.
  5. Legal and Financial Considerations: Both buyers and sellers should consult with legal and financial professionals to fully understand the implications of a Subject-To Transaction. Lenders can sometimes call the loan due upon transfer of ownership, which could lead to complications. Additionally, buyers should ensure that they are capable of maintaining the mortgage payments for the duration of the loan.

Why Choose a Subject-To Transaction?

  • For Buyers: A Subject-To transaction can be an attractive option for buyers who may not qualify for traditional financing but are looking for an opportunity to take over an existing mortgage with favorable terms. It can also be a way to gain property ownership without needing to pay off the mortgage in full.
  • For Sellers: Sellers may benefit from a Subject-To sale by finding a buyer who can take over the mortgage payments, particularly in situations where they are unable to afford the mortgage payments themselves but wish to avoid foreclosure.

If you’re considering entering into a Subject-To Transaction, our team at RD Title + Exchange is here to guide you through the process. We can help you understand the legal complexities, provide clarity on title insurance policies, and ensure that all necessary documents are in place for a smooth transaction. Contact us today to learn more about how we can help you with your Subject-To property transaction.