When buying or selling real estate their are many ways to get a property sold. There are lots of legal, creative ways both buyer and seller can agree to accomplish a win-win situation to get a property sold.
One creative way of selling a property in Tulsa, OK is selling real estate Subject To The Existing Mortgage.
There are many reasons both buyer and seller would agree to a subject to the existing mortgage transaction. If done correctly it is a great way to buy and sell a piece of Tulsa real estate. If done incorrectly, it can put both buyer and seller at risk.
To learn more about buying and selling real estate using Subject To The Existing Mortgage read on…
What Is Subject To The Existing Mortgage When Selling Real Estate?
Selling a house subject to the existing mortgage means the existing mortgage is NOT being paid off. The existing mortgage stays in place and the buyer takes over the payments and the deed is transferred to the buyer.
Selling Property Subject To The Existing Mortgage: Benefits To Buyer
Buying a house is expensive and requires the buyer to come up with cash for the sales price or a percentage of the sales price. Plus, the buyer is subject to current interest rates from a traditional lender or a private money lender in addition to origination fees and points on the loan.
Some of the many benefits to a buyer when buying real estate Subject To The Existing Mortgage are:
- Cash outlay for the buyer is less making it easier for a buyer to buy the property.
- Interest rate and monthly payment is typically less because the buyer is not having to borrow the money from a private lender that charges an interest rate in excess of 10% or more. Consequently, the cost to carry the property is less for buyer.
- Financing is already in place allowing the buyer to close fast and does not require an appraisal or for the loan to be approved by an underwriter.
- Frees up cash so the buyer has money to update the house and handle repairs.
Selling Property Subject To The Existing Mortgage: Benefits To Seller
Bad things can happen to good people like loss of job, or the loss of a loved one… Or an unexpected health issue.
There are many things in life that can cause unforeseen financial stress and make home ownership become a burden. When home ownership becomes a burden, oftentimes, the upkeep on a home is not done. So now, there is the stress of PAYING THE MORTGAGE ON TOP of fixing things when needing repair. This is all part of home ownership. Many times people need to sell a house fast!
Some of the many benefits to a seller when selling real estate Subject To The Existing Mortgage are:
- Sell a house with NO Fees, NO Commissions, NO Closing Costs on the date of their choice.
- Creative way to get a hard to sell house SOLD FAST!
- Seller might be able to make a little bit more money when selling their property because buyer might be willing to pay a little more for the home.
- Upon closing of the property, the seller usually walks away with CASH if there is equity. The seller will get cash in their hand–the difference of the agreed upon sales price and the balance of the mortgage. For example: Let’s say the buyer and seller agree to a sales price of $110,000 and the balance of the mortgage is $100,000. The buyer must come up with the difference at close of escrow putting approximately $10,000 cash in the pocket of the seller. This is why many sellers have chosen this win-win option with 918 Home Solutions!
Subject To The Existing Mortgage: Is It Legal?
Contrary to popular belief, the ‘Subject to’ method is perfectly legal. The creative acquisition technique has been used in real estate for DECADES! This is a method that allows people to get around many of the obstacles in their way, so it’s understandable that people would be suspicious of it. However, real estate agents and experts will actively recommend the ‘Subject to’ method to clients who are in situations where they have very little time and a lot to lose.
The ‘Subject to’ method differs from owner financing. In owner financing, it is literally the owner who finances the property instead of the bank. Owner financing is a good option for owners who do own the property outright and do not have mortgages. If both parties have more equity and large loans to deal with, owner financing might also be a better option. However, in cases where the owner doesn’t have a lot of equity, the ‘Subject to’ method is still going to be better.
The Pitfalls of Subject To The Existing Mortgage
So by now, depending if you are the buyer or the seller you might be asking yourself “What is the catch and how do I protect myself” if using subject to the existing mortgage as a way to buy or sell a piece of real estate.
The Due on Sale Clause
The due-on-sale clause can potentially be one of the biggest pitfalls. This is a clause in the original loan documents of the seller. In essence, it says that if title is transferred or changes hands, the bank has the right to call the loan due and in full. Keep in mind, though, I said “right to call the loan,” but the real question is how often do they? Very rarely do banks accelerate these loans. What may trigger this or provide incentive for the bank would be lack of mortgage payments. More often than not, banks happily accept on-time payments rather than dealing with the costly process of calling a loan due and attempting to foreclose. Banks prefer money, not houses!
918 Home Solutions has helped many Tulsa homeowners in need of selling their home through Subject To The Existing Mortgage. We have never had a bank call the loan due. We have always made the mortgage payment on-time. We service the mortgage through the escrow company making sure everything is done above board.
Title Insurance and Mortgage Servicing
Getting title work done and title insurance is essential when buying a property Subject To The Existing Mortgage. If you’re the seller, consult with the escrow officer so you can protect yourself against the buyer not making payments on time.
Make sure you also set the mortgage payment up to be serviced through the escrow company so, as the seller, you know the mortgage is being paid on time.
As the seller, ask the escrow officer about doing a “mirror wrap” so in case the buyer does not make the payments, you can get your property back. A “mirror wrap” accomplishes the same thing but has better protection for the seller.
Making sure the home is insured is essential. Most mortgage payments have in impound account which includes paying the property taxes and homeowner’s insurance when making the mortgage payment.
It is best for the seller not to cancel the homeowner’s insurance since it is being paid through the mortgage.
If the homeowner’s insurance is cancelled, it is a trigger to the bank and can cause the bank to investigate triggering the due-on-sale clause and the bank calling for the note to be paid in-full. It is best to keep the current insurance policy in place.
It is easier to have all parties named as insured or additional insured on the one policy, including previous and current owners. This is at NO expense to the seller.
Types Of Mortgages You Can and Cannot Sell Subject To Existing Mortgage
When selling a property Subject To The Existing Mortgage, the mortgage needs to be a conventional loan. If you have an FHA or VA loan you can’t sell your property subject to the existing mortgage. The government loans are very strict about what can be done with an FHA or VA loan and the title companies wont insure the property at the sale if you have an FHA or VA loan.
Another thing to be aware of… If you have a Home Equity Line of Credit (HELOC) it will need to be paid off through escrow when selling Subject To The Existing Mortgage. As the buyer, you want the HELOC paid off at closing because with an open line of credit, the seller could pull money from the line which can cause plenty of cascading issues. Once ready to pay off the mortgage and/or sell the property, additional funds would be needed to pay off the line of credit ON TOP of the balance of the mortgage. Title companies will usually require HELOC’s to be paid off and closed when buying subject to the existing mortgage.
There are pros and cons to selling a house, multi-family property, land or mobile home through Subject To The Existing Mortgage. Make sure you fully understand what you are doing if you are the seller and have the escrow/title company working in your best interests to protect you.
918 HOME SOLUTIONS… WE’LL BUY YOUR HOUSE… If you have a house, a commercial property, or even a piece of land in Tulsa, OK or any surrounding areas in Oklahoma and would like a cash offer and a quick easy sale, fill out the form below. Or give us a call at 918-205-0971.