Should I Sell My Home 'Subject-To' in Central Florida? Risks & Considerations for Sellers

Selling a home in Central Florida, especially in fast-growing markets like Orange and Osceola counties, involves making many decisions. One option you might have heard about is selling 'subject-to.' But what exactly does that mean, and more importantly, is it a smart choice for homeowners in Orlando, Kissimmee, or surrounding areas?

In this guide, we'll explain everything you need to know about selling your home 'subject-to'—what the process looks like, the potential risks involved, and why some sellers might choose this unconventional method of sale. Whether you're trying to avoid foreclosure or simply need to sell your home quickly, it's important that you weigh the pros and cons of this approach, especially in a thriving real estate market like Central Florida.

What Does Selling a Home 'Subject-To' Mean?

Selling 'subject-to' refers to a situation where the buyer takes ownership of your home while the mortgage stays in your name. The buyer agrees to take over the monthly mortgage payments. Still, crucially, your name remains on the loan, and the bank or lender is not formally informed about the transfer of ownership.

The buyer gets the title to the property, but the existing mortgage remains active in your name. You're still the borrower responsible for the loan from the bank's perspective. The buyer, meanwhile, benefits from not having to qualify for a new mortgage or pay closing costs typically associated with a traditional home purchase.

Critical Aspects of a 'Subject-To' Sale

• Existing Mortgage: The original mortgage stays in place, and the buyer agrees to make payments. However, no formal mortgage assumption occurs, meaning the loan continues under the seller's name.
• Title Transfer: While the ownership of the home is transferred to the buyer, you, the seller, remains fully responsible for the mortgage loan..
• No Lender Notification: Unlike in a traditional sale, the mortgage lender is often not notified of the transfer of ownership, which presents a significant risk.

Buyers might see buying 'subject-to' as a great opportunity to buy a home without having to apply for a loan, or even affect their own credit, but for sellers, this type of sale carries significant risks.

Why Would a Seller Consider Selling 'Subject-To'?

There are scenarios where it might be appealing to sell 'subject-to,' particularly if you are facing financial difficulties.

Some of the Reasons You Might Have for Selling Your Home 'Subject-To'

Avoiding Foreclosure:

One of the main reasons we hear sellers have to choose a 'subject-to' sale, is to avoid foreclosure. So, a 'subject-to' sale could seem appealing if you're behind on your payments and risk losing your home anyway.

Selling a Home Quickly:

If you need to sell your home quickly, 'subject-to' sales can usually close very quickly and get you out of the payments on your mortgage, provided, the buyer continues to pay.

Low or Negative Equity:

If your home's market value is close to or less than what you owe on your mortgage, selling 'subject-to' might allow you to sell your homewithout paying for the shortfall. This is particularly important in regions where home prices are fluctuating. In some parts of Osceola County, a slower real estate market might make it harder to sell your home traditionally if you have little equity built up.

The Risks of Selling Your Home 'Subject-To'

While selling 'subject-to' may seem advantageous in certain situations, it's critical to understand the potential risks involved—many of which could have long-term consequences to your credit and your ability to borrow money in the future, even if the buyer keeps up the payment, because the mortgage will still show on your credit report, not the buyer's.

Risk of Buyer Default

One of the most significant risks is that the buyer might stop making mortgage payments. Since the mortgage is still in your name, you remain legally responsible for those payments in a subject to sale. If the buyer defaults, your credit score will take the hit, not theirs. The bank may still pursue you to pay the loan balance even though you no longer own the home.

Consider a scenario where you've sold a home in Kissimmee under a 'subject-to' agreement, and the buyer stops paying after a year. If you can't step in to cover the missed payments, your mortgage could default, leading to foreclosure, severely affecting your credit. Even if the property is no longer yours, your financial reputation is still tied to it.

Due-on-Sale Clause

Most mortgages include a due-on-sale clause, which enables the lender to require the loan paid in full if the property changes hands without their approval. Although this clause is only sometimes enforced, it poses a significant risk.

If the lender discovers that ownership has transferred through a 'subject-to' sale, they could demand immediate payment of the remaining loan balance. This could be financially devastating if you're unprepared to settle the total loan amount. Furthermore, you will be responsible for paying off the loan while someone else owns your former home!

Impact on Credit

Because the mortgage remains in your name, any missed or late payments will directly affect your credit score. Even though you no longer live in or own the property, your financial health remains tied to the buyer's ability (or inability) to make payments. This could severely limit your options for securing a loan, whether you're looking to buy another home in Orlando or elsewhere.

Liability for the Property

Once you have sold the property 'subject to,' you lose control over its management. If the buyer fails to pay property taxes, maintain homeowners' insurance, or lets the property fall into disrepair, you could still be held legally responsible as the original mortgage holder.

Alternatives to Selling 'Subject-To' in Central Florida

Suppose the risks of a 'subject-to' sale seem too high. In that case, several other options are available to sellers in Central Florida that may offer more security and peace of mind.

Lease Option (Rent-to-Own)

A lease option allows you to rent your home to a tenant who can purchase the property later. The buyer pays an upfront option fee and agrees to lease the property for a set period, with the right to buy the home at the end of the lease. This gives you rental income and a potential buyer while keeping more control over the property than you would in a 'subject-to' sale. This can be an attractive option for both parties in high-demand areas like Orlando or Winter Park.

Seller Financing

With seller financing, you act as the lender. The buyer makes payments directly to you instead of a bank, and you retain a lien on the property until the loan is paid off. This can be a safer option than selling 'subject-to' because you still hold some leverage if the buyer defaults. In competitive markets like Lake Nona, where buyers might need help securing traditional financing, seller financing can provide flexibility for both the buyer and seller.

Short Sale

A short sale occurs when the lender agrees to let you sell your home for less than what you owe on the mortgage. This option may hurt your credit, but it's often less risky than a 'subject-to' sale since it's a formalized process. In Orange County, where home prices vary by neighborhood, a short sale could help homeowners in financial distress avoid foreclosure while minimizing long-term damage to their credit.

Is Selling 'Subject-To' Right for You?

Deciding whether to sell your home 'subject-to' requires a thorough assessment of your financial situation and risk tolerance. Here are some critical factors to consider:

• Your Mortgage Terms: Check if your mortgage includes a due-on-sale clause and understand the potential consequences of triggering it.
• Buyer Trustworthiness: Are you confident the buyer will keep up with the payments?
• Financial Cushion: Can you afford to step in and make payments if the buyer defaults? Would you even want to do this, knowing you are essentially paying for someone else's property?
• Legal Consultation: Have you consulted a real estate attorney or financial advisor? Getting professional advice before proceeding with a 'subject-to' sale is highly recommended, given the complexities involved.

Conclusion

Selling your home 'subject-to' in Central Florida can seem appealing for homeowners facing financial challenges or seeking a quick sale. However, the risks involved—buyer default, triggering a due-on-sale clause, and long-term credit impact—are significant. Before pursuing this path, it's crucial to completely understand all the implications and consider alternatives like lease options, seller financing, or a short sale.

Consulting with a local real estate professional and a lawyer can help you make a more informed decision.

Disclaimer:

This article is for informational purposes only and does not constitute legal or financial advice. The views expressed in this article are solely the author's opinions. They should not be relied upon for legal, tax, or financial decisions. Always consult a qualified real estate attorney or financial advisor to assess your circumstances before proceeding with a 'subject-to' sale.