Selling Subject To – Its Potential Pitfalls

Subject To – The Cons
If you are looking for a quick and easy sale, then your decision of selling subject to is a no brainer. Before jumping head-in, however, you need to be mindful of a few areas that may be considered the cons of selling subject to so that you can avoid them and instead experience a bountiful sale.

Traditional selling is pretty cut and dry. There is a seller and there is a buyer and once the closing papers are signed it results in the property being deeded to the buyer, all the seller’s existing home debts being paid, and the seller riding off into the sunset (hopefully with a little cash in hand). When selling subject to the process is similar except that the seller’s existing home debts are not paid off – they instead remain in place and the buyer begins making payments on the seller’s mortgage.

Unprofessional Real Estate Investors
The thought of selling subject to can seem a bit risky, and it can be, so it’s important that you do your homework on the buyer! So, how can you ensure that you avoid unprofessional investors? There are a few of ways: ask the real estate investor for references and call them, require 6-months of bank statements to ensure that they have enough cash to cover at least 6-months of mortgage payments, and require that the investor sign a deed in lieu of foreclosure which would automatically deed the property back to you if the investor misses payments. Another option when selling subject to is to require that the investor hire a company to service the mortgage. This will ensure that you have a professional team on your side who will demand that the investor perform on his promises. Professional investors who are serious buyers will gladly agree to and have all the above information readily available, but more importantly, they will offer it up willingly.

Due on Sale Clause
Practically all mortgages have a sentence that’s commonly known as the due-on-sale clause which states that the mortgage company may demand that the existing mortgage be entirely paid off once the property is deeded to someone else. The thought of this is scary, however, we have never seen this happen! Why not? Because it actually costs the mortgage company between 20% and 30% to foreclose on a loan. Moreover, for the subject to sale to close it requires that any missed and late payments be made so that the loan is brought back to current. Why would a mortgage company foreclose on a loan which is in good standing? We can’t think of a reason. The bottom line is that selling subject to is 100% legal and we have never seen a mortgage company call a note due! Hear what one of our recent subject to sellers has to say about working with FixerUpper4Cash.

Learn More About the Cons of Selling Subject To
If you’re still unsure about which home selling option is best for you, then reach out to our local investors to learn more about the pros and cons of selling subject to and how we can help.