Real Estate “subject to”?

Realestatenovice: Real Estate “subject to”?
I am selling property and have been offered a price “subject to” the existing financing. I understand the basics of this (I keep the mortgage but transfer the deed). What are the potential issues? If I get a 10% deposit from the buyer, collect payments directly from the buyer and pay the mortgage on my own to maintain control of whether or not it is paid?…I can afford to make the payment even if the buyer doesn’t pay me on a given month so that my credit won’t be affected. I assume I can foreclose at that time (if he is late)? Is that a lengthy and expensive process in GA? What happens legally if my mortgage company decides to call the mortgage? I doubt this would happen because I will continue to make the payments regardless, so they will have no trigger event to make them want to call it and force them into owning real estate.
This is not my primary residence. The mortgage was taken out on a rental property.

Answers and Views:

Answer by balletdncr
Well I am a real estate agent in NC and laws are different from state to state but why don’t you just lease the subject property? I have never agreed on “subject to” b/c there is obviously a red flag on the buyers financing. So why get rapped up in the possibility of them defaulting and you having to pick up the pieces when you could just rent it out for a little more and actually make money on the property. Deposit or no deposit, I would be careful.

Answer by golferwhoworks
You must look into the foreclosure laws first. Most homes do not go into default until 120 days behind in payments. Since this is a land contract yes you could foreclose on the buyer. That will take a lawyer to file the paper work. Since you are doing this as a private mortgage your lender will not trigger a due on sale clause unless you tell them about it. If this was your primary home then you just need to submit a change of address form to your current lender as to the P.O. number. You may tell them you think that kids in the neighborhood may be getting some of your mail. That is a good explanation.

Answer by Chihuahua Mom
Basically what you describe can be called an AITD(all inclusive Trust Deed) or a Wrap.

You understand the basics correctly. If you have sufficient income to cover the payments that’s an added bonus. Many folks get into this arrangement without the income to do what you describe.

As for foreclosure, yes that is an option if the buyers fail to meet their obligation, however, yes this can be lengthy and costly. In both time and potential damage the buyers may have done to the property. I believe Ga. is an Attorney closing state so my recommendation would be to talk at length to the one you are using. The AITD contract should specify under what terms you may foreclose.

When title to a property is transferred and the existing lien of record is not paid in full there is a possible risk the lender could call the note due and payable. However, this is not a practice that is cost effective to the lender. Typically as long as you continue to make payments in a timely manner the lender will not exercise this right. Bottom line….they don’t want the house.

Although unlikely, your mortgage may be assumable. If this is the case you might want to consider allowing the new buyers to assume your loan and that would remove your liability to the property.

Answer by topcat420
Sorry but you may be wrong about your mortgage company not calling the loan. They gave YOU a loan for your PRIMARY RESIDENCE not a hybrid for of a rental. If they find out you are renting the home they most certainly will at the least make you refinance the loan at a much higher interest rate. Also you have a problem with your homeowners insurance. If the home burns down they may not pay a cent because you were renting and again it was not your primary residence.

Just sell the property or contact your lender and insurance company and protect yourself. I have seen people loose control of their property because of a lease with option because the owner didn’t get an attorney to write up the agreement and the person sold the option to a deadbeat that ceased paying and in turn destroyed the property.

Answer by frogee100179
“Subject to existing financing” is basically if they do not get financing you have the ability to drop out of selling the property to this buyer. You are under no obligation to sell the house to them if they do not get their own financing and you are not obligated to make them pay you to pay your mortgage. You will, however, lose the security deposit unless you have a clause in the purchase agreement that states you can keep it under any circumstance. You would be better off having the property under a land contract rather than a purchase agreement in the situation you describe above as the purchaser would be required to payoff your lien in a specified amount of time per the land contract determined by you and it helps you more legally as the are the SPECIFICALLY your tenant that has the option to buy the property after the set time period, or before depending on the exact terms of the contract therefore if they become delinquent you can evict them rather than foreclose on them which in any state is much more cost effective!!!

Also, you have existing financing and your lender is not going to call the loan just for turning it into a rental property. If they did that then almost every single person in the US that purchased a house, fell out of love with it and decided to hold on to it and make money off it would have that issue and I HAVE NEVER SEEN IT!!