What Does It Mean To Sell A House Subject To?
When talking about selling with Terms, you might come across the topic of Subject To. So what is it? Basically, it’s an aspect of Terms wherein the ownership of the home transfers but the debt stays in the name of the seller. As you keep reading though, you’ll see why this isn’t a big deal at all.
The Basics Of Subject To
In its entirety, this Terms aspect is called Taking Over Debt Subject To The Underlying Loan. So whenever you hear the shortened version “Subject To” pertaining to Terms, this is what they mean.
As mentioned already, this particular arrangement will result in the ownership of the home transferring to the investor, which is what EMK Properties is. The debt however, stays with the seller. This is done with the full understanding that it will be paid as agreed upon. Once the agreement is signed, payment for the debt will begin at a time that both parties agreed on and will continue until the debt is settled.
Now, there are several reasons for why Subject To is not something to get worked up over such as the following:
- Rarity of tenant buyer defaulting
- Protection in case of default
- More benefits to preserving trust between seller and investor
- Simply for personal credit protection
Debt payment interruptions can be caused by tenant buyers defaulting on their purchase, but in our extensive experience, these cases are extremely rare. Generally speaking, when a buyer is prepared to give a substantial down payment that is also non-refundable, they are more than willing to see the deal through.
In the event that a default does happen, which we repeat very rarely happens, you (the seller) are protected. As is the case with banks, you will have a note and recorded mortgage secured by the property itself (in the same manner a Bank does when it loans to an individual to buy a house). If the worst should happen (and the buyer defaults), you can always take back ownership of the home. We will provide assistance with foreclosure paperwork and if you decide to sell again, we will still be at your service.
EMK Properties also plans to stay in business for a long, long time and we can’t do that if we don’t honor our commitments to both the seller and the buyer. There are significantly more benefits to preserving the trust amongst us, the seller and the buyer.
Finally, selling Subject To can be seen as a way for the seller to protect their personal credit by not allowing the property to go into foreclosure if they are unable to make the payments. For our part, we stake the name and good standing of EMK Properties every time we buy a home.
What You Get Instead
Now that we’ve cleared all that up, let’s discuss what you get with Subject To, starting with the following:
- Fast debt relief
- Quick home sale
- Not worrying about repairs since they will be up to the tenant buyers
- No bank involvement
- Simple process
- No commissions
- No real estate listings
A bigger pool of potential buyers leads to a quick conclusion to the sale and to fast debt relief. The seller won’t have to worry about any repairs that need to be done on the home either since the tenant buyer will take care of that as per agreement. Also, since the seller effectively acts as the bank, the process is so much simpler.
Finally, there is no need to deal with real estate agents who work on commission and who will list the home, which could tie it up for months or years. By utilizing Subject To, payment of debt will at least be consistent, preventing it from getting worse.
In cases where the seller intends to go qualify for another loan shortly, we can use a Wraparound Mortgage. This will ensure that the seller is showing income matching the same amount of their mortgage. The reason this is important is so the seller can qualify for a new mortgage by having a more balanced Debt/Income ratio.
For any questions or clarifications regarding Subject To, contact us via email or give us a call. We would be happy to answer any concerns you may have.