Are Subject-To Real Estate Transactions Worth the Risk?

 Posted on March 27,2023 in Criminal Defense

 “Subject-To” real estate transactions can be beneficial for both the buyer and the seller as long as the right protections are put in place. The following is a brief overview of these types of purchases. If this is something you are considering – either as a buyer or seller – contact our Stamford real estate law firm for more detailed information.

What Is a “Subject-To” Transaction?

A Subject-To real estate transaction is when a buyer purchases a property but the mortgage stays in the seller/current owner’s name. A deed is drafted that turns the property over to the buyer, but the mortgage – and legal obligation to pay it – is still on the seller. The financial institution that holds the mortgage is not notified of the transaction. Instead, the buyer now takes over the mortgage payments. These transactions typically involve little or no cash and no credit.

Subject-To transactions are often used in situations where the current seller has fallen behind in their mortgage payments and is facing foreclosure. The benefit for the seller is that the foreclosure does not take place and with the buyer now taking over payments, the seller’s credit will begin recovering.

The benefit to the buyer is that are able to purchase a property without having to put down a significant downpayment – most banks require a minimum of 20 percent – and they do not have to pay all the closing costs and other fees normally associated with purchasing a home.

Are There Risks with Subject-To Real Estate Transactions?

Although these types of transactions may sound like a win/win for both the buyer and seller, both parties need to be aware of the potential risks associated with these types of sales.

For example, if the mortgage lender learns that the parties entered into a Subject-To transaction, they could call in the entire loan under the “due-on-sale” clause contained in most mortgages. This clause requires that if a property owner sells the property, the mortgage must be paid in full. This could leave the buyer out thousands of dollars, depending on how long they had been making the mortgage payments.

Conversely, if the buyer stops paying on the mortgage, it is the seller who is still financially and legally responsible for those payments since it is their name on the note, even though they no longer live in the home.

Contact a Fairfield County Real Estate Lawyer

While Subject-To real estate transactions can be beneficial, it is critical to have a seasoned Stamford, CT real estate attorney representing you throughout this process in order to protect your interests. Call Law Offices of Daniel P. Weiner at [203-348-5846 to schedule a free consultation.

Sources:

https://www.ahwatukee.com/real_estate/article_042fea28-5ed5-11ed-8441-6753012e093a.html