Subject-To


Another technique to sell a property quickly is to sell the property “Subject-To” the existing financing. This is a variation of owner financing (see wrap-around mortgage), however, in this transaction the seller deeds the property to the buyer, who in turn makes the payments on the loan directly to the lender going forward. After the new buyer purchases the home at the title company, the seller is no longer involved with the property. This is functionally similar to a loan assumption; however, technically, it’s not an assumption, because the seller’s name is still on the loan. Note: virtually no loans in recent years are legally assumable.

Example:

  • Home value: $200,000
  • Existing loan amount: $180,000
  • Cost of sales: $15,000 (typical for this value of home)
  • Sales price: $190,000

Normally, this home would have to be sold for $205,000 or more to pay off the loan and cost of sales. Selling subject-to, enables the owner to sell the home to a buyer for $190,000 with no closing costs other than title insurance and small fees paid by the buyer.

The benefits to selling a home subject-to are that the buyer does not need to qualify for a loan, pay for appraisals, origination fees, or loan applications. These savings make the transaction more affordable.

The disadvantage to selling subject-to is that the loan is technically still in the name of the seller. In other words, if the buyer defaulted on the loan, it would affect the seller’s credit. Therefore, if you are a seller, selling a property subject-to, you will want to make sure the buyer has strong financial credentials, and is buying the property using this technique to save money, and not because they cannot afford a conventional loan.