Subject-to, explained in plain English

The short version

You sell the house to us and sign over the deed. Your mortgage isn't paid off. It stays in place, and we make the monthly payments going forward.

"Subject-to" just means we take the house subject to the loan that's already on it. We become the owner. The loan comes along with the house.

Your loan stays in your name

The lender doesn't approve us as the new borrower. So legally, the loan is still yours until it's paid off or refinanced. That's the single most important thing to understand about this kind of sale.

It's also why how the payments are handled matters so much. If a payment is ever late, it shows up on your credit, not ours. You should never have to take anyone's word for it. You should be able to see every payment yourself.

The due-on-sale clause

Most mortgages say the lender may require the full balance if the house is sold. That's called the due-on-sale clause. Federal law, the Garn–St Germain Act (12 U.S.C. § 1701j-3), lets lenders enforce it, with some exceptions such as transfers to a spouse or child.

It's a right the lender has, not something that happens automatically. But nobody can promise a lender won't use it, and we won't.

Here's what we do if it happens: in writing, we commit to refinance, sell, or pay off the loan within an agreed time. And we'd still be the owner responsible for the house. Read more in The due-on-sale clause: how real the risk is.

How this affects your credit

On-time payments keep reporting on your credit as your loan. That can help your credit history over time.

A late payment would hurt your credit. That's why you should be able to check every payment yourself, and why the contract should say how fast you'll be told about any problem.

Because the loan still shows as your debt, it may affect your ability to get a new mortgage for a while. Some lenders will leave it out if you can show someone else has been paying it, but not all will. If you plan to buy another home soon, talk to a loan officer before you sell.

How payments are made, and how you can check them

Before closing, you'll get a written plan that covers exactly how the payment is made each month and how you can see it. Common ways to do this include:

• A licensed third-party loan servicing company collects the payment and pays the mortgage, and sends you statements.
• Read-only access to the loan account, so you can log in and see the payment history yourself, or monthly proof of payment sent to you.
• Written notice within a set number of days of any late payment, so a problem can't stay hidden.

The method we use for your deal is written into your contract. You don't have to take our word for anything.

Insurance and taxes

We put a new homeowner's insurance policy in place that lists the lender, and we ask that you be named as an additional insured or interested party, so you'll hear if coverage ever changes.

Property taxes and insurance stay paid through the loan's escrow account or directly, and you can verify them. Florida tax and insurance records are easy to look up, and we'll show you how.

Closing the right way

A licensed Florida title company or attorney runs a title search, prepares and handles the documents, and records the deed with the county. They also handle any money that changes hands.

You're welcome, and encouraged, to have your own attorney review everything before you sign. If anyone tells you that's not necessary, that's a reason to slow down.

Subject-to vs. a loan assumption vs. seller financing

More detail in Subject-to vs. loan assumption.

Florida-specific things to know

Homestead. Once you sell, the house is no longer your homestead, so your homestead exemption and Save Our Homes cap end for that property. The new owner's taxes can be reassessed the next January 1, and our plan should account for that higher tax bill.

Documentary stamp tax on the deed. Florida charges doc stamps on deed transfers. On a subject-to sale they're generally based on the price including the loan balance taken subject to. Who pays is set in the contract.

Insurance. Florida's homeowner's insurance market is tight. Coverage has to be in place before closing, and the policy has to fit a non-owner-occupied house if we'll be renting it out.

Foreclosure. Florida foreclosures go through the courts. If you've been served, get advice right away. Special Florida rules apply when a home in foreclosure is sold to an investor (Fla. Stat. § 501.1377), and we follow them, including any required contract terms and cancellation rights.

Closing. In Florida, closings are usually handled by a title agency or a real estate attorney, and we only close through one.

Questions to ask any buyer

Whether you sell to us or someone else, check them out first. We wrote a full checklist with the exact questions to ask: How to check out a payment-takeover buyer.