Subject to Real Estate: Wait how does this work?

Does this guy look like he has the secret to Residential Real Estate?

As a Labrador and a seasoned realtor, I’ve seen my fair share of interesting real estate trends. But let me tell you, when it comes to “subject to” mortgage financing, it’s a whole different kennel of quirks. So, let’s take a sniff around Subject to real estate, shall we?

The “Subject To” Bone to Chew On: A Labrador’s View

“Subject to” financing, in human terms, means buying a property subject to the existing mortgage. It’s like finding a half-buried bone in the backyard and deciding it’s yours, even though it still technically belongs to the neighbor’s poodle. This idea became very popular from a youtube personality named Pace Morby. I’ve had calls from buyers asking if my client would accept a “subject to” purchase of the property. Essentially what this does for the buyer is ties up their property with somebody who is claiming they will make all of the payments. None of this is done through promulgated (cool word) documents. Here in Texas realtors have to use official documents approved by TREC to transact on a clients behalf, otherwise we are considered to be practicing law. So the real question is who is drafting these documents for the buyer and do you feel comfortable enough that they will protect you as the buyer or seller if things go sideways?

“Subject To” Aren’t there laws against that

Now you may be asking but isn’t residential real estate highly regulated to prevent people from leveraging hundreds of thousands of dollars (if not millions) , without much skin in the game? Well you know how crafty these HGTV stars can be. Subject to Real Estate is what has come next. There are several ways that subject to investors try to make money buying a house. The most common are to turn around and sell the house quickly or rent the property out. The problem with this notion is that if this home had such great demand why wouldn’t the homeowner do this themselves and collect that equity gap that a random dude in a trucker hat and jacket (Pace Morby) is trying to scoop up. Don’t ask me this trend has become hotter than We Work in 2019

The Hidden Fleas: Subject to Risks You Might Not Sniffed Out

1. The Due-on-Sale Clause: Picture this: You’re happily rolling in your new yard, and then bam! The bank smells something fishy and demands full payment of the existing mortgage because of this clause. Good luck explaining that to your human buyers without a legal degree. At the end of the day the bank is going to tell you that the contract says what the contract says and now your loan is due.
2. Credit Risks: Let’s say the original borrower decides to chase squirrels instead of paying their bills. If they default on the loan, guess whose new doghouse is at risk? Yep, yours. It’s like trusting the cat not to knock over the vase.
3. Insurance Issues: Transferring property without paying off the mortgage can lead to insurance complications. It’s like trying to insure your tail separately from the rest of your body – confusing and messy. You will essentially be creating a middle man that doesn’t live in or own the property to insure the property in the event that something goes wrong (which, something always goes wrong).
4. Legal Implications: If you think the world of real estate law is a walk in the park, think again. There’s a maze of legal considerations that can make “subject to” deals as risky as a mailman during naptime.

The Dog Park of Alternatives: Safer Ways to Fetch a Property

• Traditional Financing: Sure, it’s as exciting as a basic kibble diet, but traditional loans are straightforward and less risky than a sneaky “subject to” deal.
• Lease Options: A lease option is like fetching a stick you might decide to keep later. You lease the property with an option to buy. Less risky, and you get to test if the yard is really big enough for your zoomies.
• Seller Financing: This is when the seller acts as the bank. It’s like trusting your human to hold your treat while you do tricks. It requires trust, but it’s more straightforward.
• Assumable Mortgage: This is when the seller acts as the bank. It’s like trusting your human to hold your treat while you do tricks. It requires trust, but it’s more straightforward, since it goes through legal binding channels and the bank is involved. Here are some assumable listings if your looking.

In the dog-eat-dog world of real estate, “subject to” mortgage financing is like chasing your tail – it might seem fun at first, but it can leave you dizzy and confused. There are safer, more straightforward ways to get your paws on a property.

If you do find yourself looking to buy or sell a home in the DFW area anywhere from Highland Park to Southlake or Roanoke give me a bark. I’d be happy to help.