Subject-to transactions in Texas are a type of real estate purchase in which the buyer takes over the payments on an existing mortgage instead of getting a new mortgage. It can be useful for buyers who are unable to obtain a traditional mortgage, as well as for sellers who are unable to sell their property through traditional means. As appealing as this may sound, however, sellers need to be aware of the potential risks that can come with subject-to transactions.
ENSURING THE BUYER WILL MAKE THE PAYMENTS
One of the key considerations for sellers is the certainty – or lack thereof – that the buyer will continue to make the payments. In most subject-to transactions, the buyer does not provide any assurances to the seller that they will make the mortgage payments. If the buyer decides to stop making payments, the seller has little or no recourse against the buyer and may not be able to get their home back. It is imperative to ensure that the buyer has the resources to make the payments.
DOCUMENTS DRAFTED BY THE BUYER
Sellers should also be aware of the documents the buyer drafts in a subject-to transaction. These documents typically favor the buyer, so it is important for sellers to fully understand the content and implications of each document before signing. Some typical documents buyers use in subject-to transactions include:
- Assignment of insurance proceeds
- Limited power of attorney
- Authorization to release information from the mortgage company
- Subject-to addendum or acknowledgement
- Subject-to deed or assignment of beneficial interest
- Change of insurance request
DEED OF TRUST TO SECURE ASSUMPTION
Another important consideration for sellers is the deed of trust to secure assumption. This is a legal document that creates a security interest in the property to secure the assumption of an existing mortgage. Sellers should also consider an assumption agreement, which is a legal document that allows the new borrower to take over the responsibilities and obligations of an existing mortgage from the original borrower.
Sellers should be aware of the due-on-sale clause. This provision in a mortgage contract gives the lender the right to demand full repayment of the loan balance if the property securing the loan is transferred without the lender’s written consent. Sellers should also consider how they will verify that the buyer is making payments and whether they are ready to make a long-term commitment with the potential buyer.
TURN TO THE FARAH LAW FIRM
Subject-to transactions in Texas can be a useful option for both buyers and sellers in the current real estate market. However, sellers need to be aware of the potential pitfalls before entering into an agreement with a buyer. The real estate attorneys at The Farah Law Firm can help you navigate the process. Contact us today to discuss your subject-to transaction options.
About Michael Farah
Michael Farah is the founder and managing attorney of the Farah Law Firm. Mike graduated from the University of New Hampshire School of Law and is licensed to practice law in Texas and New York.