What is Subject To?
“Subject to” in real estate refers to a method of property acquisition where a buyer purchases a home subject to the existing mortgage or liens on the home. In simple terms, the buyer takes ownership of your home but does not assume responsibility for the existing mortgage debt. Instead, they continue making payments on the existing loan which remains in the seller’s name.
Here is an explanation of how subject to might benefit you:
Quick Sale. Selling a home subject to can expedite the selling process, as it eliminates the need for you to pay off the existing mortgage or satisfy any liens before closing. This can be especially helpful when you are facing financial challenges, need to sell the home quickly, or are unable to qualify for a traditional loan payoff.
Avoiding Prepayment Penalties. Some mortgage loans come with prepayment penalties which require borrowers to pay a fee if they pay off the loan before a specified period. By selling subject to the existing mortgage, the seller avoids triggering these penalties and associated costs, ultimately saving money.
Maintaining Good Credit History. When a home is sold subject to, your name remains on the mortgage loan. As long as the buyer continues making timely payments, your credit history remains intact and can even continue to improve. This is beneficial if you plan to apply for new credit or loans in the future.
Cash Flow. In some cases, the buyer may offer a down payment or provide additional funds to you at closing. This upfront cash can provide immediately financial relief to you and help meet any pressing needs or obligations.
Competitive Pricing. Selling a home subject to the existing mortgage can attract more buyers, as it allows you to offer more flexible terms. Buyers who may not qualify for traditional financing or prefer not to go through the mortgage application process might be interested in purchasing a home subject to the existing loan. This broader pool of potential buyers may lead to increased competition and potentially higher purchase offers.
Limited Liability. With the mortgage remaining in your name, you are not responsible for any future defaults or other risk associated with the loan. The buyer assumes the risk of making timely payments and adhering to the terms of the existing loan.
It’s important to note that selling subject to comes with its own set of risks and considerations for both you and the buyer. As such, a real estate attorney will be consulted with in order to make sure all parties understand the legal and financial implications, assess the risks involved, and ensure compliance with all applicable laws and regulations.
