Risks Of Selling Your House "Subject To"

Monday, October 8, 2018 - by Michael Rogers

Are you considering selling your house to an investor buyer?  If you are thinking about it; a warning for you.  Do not sell it “subject to” you keeping the mortgage in your name.

So, what is selling your house “subject to” and who does this?  “Subject to" is when you sell a house subject to the existing loan staying in place. The buyer does not formally assume the loan and the loan remains in the seller’s name, but the property transfers to the buyer.  The buyer agrees to make the monthly payments on the seller’s loan going forward until the loan is paid off.

Why is this a risk for the seller?
The risk to the seller is that they transfer the property deed to the buyer, but they do not pay off the loan and clear the deed of trust.  The loan remains in the seller’s name and the seller no longer has legal ownership of the house.  That means the loan is still on the seller’s credit report and they are legally responsible for making sure it gets paid.  If the buyer doesn’t make payments on the loan, it will hurt the seller’s credit.  

Are you fully confident the investor buyer will make all payments timely and protect your credit?  I would not be.  Real estate investing has gotten popular in recent years and there are lots of “wanna-be” investors that are currently buying properties that are not experienced and will not be around in a few years.  If they purchase your house for cash, there is nothing to worry about.  If they are buying it “subject to” you keeping the mortgage in your name, your financial future is tied to the investor buyer’s future behavior.

Another issue is when the seller goes to apply for other loans in the future, the loan will show up on their credit report.  The payment on the loan (that the seller is no longer paying) will be included as a monthly expense when creditors decide if that seller can afford a loan for a car or new house.  That can have a negative impact on the ability to get future loans.

Who would sell their house “subject to”?
Given the risks, who would ever consider selling their house “subject to”?  The typical seller is someone who has a mortgage and is very motivated to sell their house.  They may be near foreclosure, going thru divorce, moving, or just needing to get rid of their house.  This is option is offered by a small percentage of investor home buyers.  

Most real estate sales are cash transactions.  This means the buyer brings cash to the closing (either their own cash or cash from a new mortgage on the property) and pays off the seller’s loan on the property.  In short, the seller sells their house, pays off their mortgage and are totally done with the house and mortgage.  In a “subject to” sale, the investor buyer is not having to bring cash to closing or get their own loan.  The investor can save money on financing costs and will typically offer a higher price if they can buy the house “subject to”.  The higher offer price is often appealing to a motivated seller that is looking for a quick sale and doesn’t have much cash if they are upside-down on their mortgage.

Conclusion
Selling a house “subject to” is not always bad option for every situation.  For a seller that is facing foreclosure, that has a very credible buyer (perhaps a family member), this option may make sense to provide temporary financing for the buyer until they can get their own loan on the house.  However, in almost all cases it is best to sell your house for cash and pay off the mortgage so that liability is no longer attached to your name.    

For more information on the pros and cons of selling a house to a home investor, view articles at www.sellmichaelyourhouse.com/blog



Kim Bass: Realtors Meet in D.C. For Hill Visits And Presidential Address

Realtor Terry Barnette Earns Seniors Real Estate Specialist Designation

Habitat For Humanity Appoints 5 New Members To Its Board Of Directors


Last week members of the Greater Chattanooga Realtors joined more than 10,000 realtors from across the nation in Washington D.C. Our purpose was to further our work with Congress to advance policy ... (click for more)

Crye-Leike Real Estate Services announces that Realtor Terry Barnette has earned the nationally recognized Seniors Real Estate Specialist designation from the Seniors Real Estate Specialist Council ... (click for more)

Habitat for Humanity of Greater Chattanooga announce the appointment of five new members to its board of directors. The new members include Lee Ann Adams, attorney at Gearhiser, Peters, Elliott ... (click for more)


Real Estate

Kim Bass: Realtors Meet in D.C. For Hill Visits And Presidential Address

Last week members of the Greater Chattanooga Realtors joined more than 10,000 realtors from across the nation in Washington D.C. Our purpose was to further our work with Congress to advance policy initiatives that strengthen the ability of Americans to buy, invest, own and sell commercial and residential real estate. This trip is so satisfying because we are able to ... (click for more)

Realtor Terry Barnette Earns Seniors Real Estate Specialist Designation

Crye-Leike Real Estate Services announces that Realtor Terry Barnette has earned the nationally recognized Seniors Real Estate Specialist designation from the Seniors Real Estate Specialist Council of the National Association of Realtors. Mr .Barnette currently specializes in residential, relocation, land, and investment real estate services in Bradley, Polk, McMinn, Hamilton and ... (click for more)

Breaking News

Person Pulled From Burning Home On Airport Road Saturday Morning

A person was pulled from a burning home on Airport Road on Saturday morning. Chattanooga firefighters were dispatched to 900 Airport Road Lot #92 on a residential structure fire with entrapment at approximately 9 a.m. Incident Commander Lieutenant Jack Babb reported fire and smoke showing upon arrival. Two residents had exited the structure prior to firefighters arrival, but ... (click for more)

Dallas Bay Volunteer Fire Department Saves Boat From Fire Saturday Afternoon

The Dallas Bay Volunteer Fire Department saved a million-dollar boat Saturday afternoon. A boat owner called 911 reporting a boat fire located at the Chattanooga Yacht Club at 9400 North Hickory Valley Road. The Dallas Bay VFD responded by boat and arrived on the scene reporting smoke and flames in the engine area. Firefighters quickly extinguished the fire due to 900 gallons ... (click for more)

Opinion

It Is Outrageous That County School Administration Used Our Tax Dollars For Political Lobbying

Dear Dr. Johnson, The campaign central at HCDE headquarters needs a Tennessee Little Hatch Act study time and education. The heart of the issue is that HCDE utilized our tax dollars to lobby against vouchers with employee time, equipment, and lobby payments. Here is my point, I supported ESA vouchers for Hamilton County, and so did a lot of families that desired parental ... (click for more)

Roy Exum: The Saturday Funnies

With all due reverence and respect for Memorial Day this Monday, The Saturday Funnies knows that those who gave their lives to preserve our freedom deserve not our laughter, but our warm memories of their devotion to our country and our fellow troops. But if you were to venture into a VFW this weekend, or come across two or more of our heroes sharing a toast, it is a safe bet ... (click for more)