Selling a house with an underwater mortgage can be tricky.
An underwater mortgage is when the amount owed on a property is more than the property’s current market value. Usually, the seller would need to pay to sell this kind of house.
However, there is a little-known secret to selling a house with an underwater mortgage, and that is by selling it “subject to.”
What Does “Subject To” Mean?
Selling a house “subject to” refers to a strategy where the buyer receives title to the property, but instead of getting their own loan to buy the property, they make payments on the seller’s existing loan. Thus, the sale is “subject to” the existing mortgage remaining in place.
Benefits of Selling “Subject To”
Selling a house “subject to” can be a good option for sellers who are struggling to sell their property due to an underwater mortgage. With this kind of sale, the seller can save a significant amount of money because they do not need to pay off the existing mortgage.
Selling “subject to” is great for when the seller needs to sell quickly and options like loan modification or a short sale are not feasible.
The seller can avoid foreclosure and the negative impact it can have on their credit score.
Risks of Selling “Subject To”
A buyer will typically only buy “subject to” if the mortgage has a desirable interest rate. This means that not everyone may be able to sell “subject to.”
Other than that, selling “subject to” comes with the risk of the seller having to foreclose on the buyer if they stop making payments. For this reason, it is important that the buyer be responsible and financially stable.
Another risk is the invocation of the “due on sale” clause, but there are a number of different strategies that the parties can use to get around this situation.
Selling a house “subject to” can be a great option for sellers who are struggling to sell their property with an underwater mortgage. This is especially true if the property needs to be sold quickly and options like loan modification or a short sale are not possible. With “subject to,” sellers don’t have to worry about coming up with money to pay to sell their house, and can move on with their lives!