Selling a property “subject-to” is an often-overlooked real estate strategy that can offer homeowners in New Orleans an opportunity to sell their property quickly and with minimal hassle. Whether you are facing financial challenges, have inherited a property, or simply want to avoid the traditional methods of selling through a realtor, selling “subject-to” could be a solution worth considering.
What is a “Subject-To” Sale?
A “subject-to” sale refers to a type of real estate transaction where the seller agrees to transfer ownership of their property to the buyer, but the existing mortgage remains in the seller’s name. In other words, the buyer acquires the property “subject to” the current financing in place. While the buyer takes control of the property, they do not assume the mortgage officially; the seller’s name remains on the loan, but the buyer makes the payments.
This approach is commonly used by investors, but it can also be beneficial for homeowners who are looking to sell quickly without needing to pay off the existing mortgage.
Why Sell Your Property “Subject-To” in New Orleans?
New Orleans is a vibrant city with a rich history, but like many urban areas, homeowners may face a variety of challenges that make selling a property traditionally a slow and cumbersome process. Whether you are facing foreclosure, have a property that needs major repairs, or need to sell quickly due to a life event, the “subject-to” strategy can offer unique advantages.
Here are a few key reasons why selling “subject-to” might be right for you in New Orleans:
1. Avoid Foreclosure
If you are struggling to make your mortgage payments and facing the possibility of foreclosure, a “subject-to” sale can provide a quick way out. In this type of sale, the buyer takes over the mortgage payments, preventing foreclosure while you avoid the damage to your credit score that can result from default.
2. Sell Without Paying Closing Costs
Traditional property sales in New Orleans come with various fees, including agent commissions, repair costs, and closing fees. With a “subject-to” sale, you can bypass many of these costs. The buyer usually takes on the responsibility for repairs and might pay for certain closing costs, making the process less expensive for you.
3. Sell a Property with Negative Equity
If you owe more on your property than it is worth—also known as being “underwater” on your mortgage—a “subject-to” sale allows you to avoid having to bring cash to the table. This strategy can help you sell the property without the need for a conventional buyer to obtain new financing, which might be difficult if your home has lost value in the market.
4. Faster Closing Process
Traditional property sales often take weeks or months to close, especially if buyers need to secure financing. With a “subject-to” transaction, the process can be much quicker since the buyer doesn’t need to secure a new mortgage. This can be particularly appealing for those in urgent need of selling their property, whether for personal or financial reasons.
How the “Subject-To” Process Works in New Orleans
While the “subject-to” strategy is a simple concept, it involves several steps that require careful consideration. Here’s an overview of how the process works in New Orleans:
1. Find a Buyer or Investor
In New Orleans, finding a buyer for a “subject-to” sale is most commonly done through real estate investors who specialize in this type of transaction. These investors are typically experienced in handling the intricacies of subject-to deals and are comfortable taking on properties with existing mortgages.
2. Agree to Terms
Once a buyer is found, you and the buyer will agree on the terms of the sale. The buyer will typically take over the mortgage payments and the management of the property. However, it’s important to note that the original mortgage holder (the lender) is not involved in this agreement, and their approval is not required.
3. Sign the Deed and Agreement
You will sign a deed transferring ownership of the property to the buyer. At the same time, you will sign a separate agreement stipulating that the mortgage remains in your name but that the buyer is responsible for making the payments. It is crucial to ensure that this agreement is clear and legally binding, so consulting with a real estate attorney is recommended.
4. Buyer Takes Control
Once the deed is signed, the buyer takes control of the property and begins making the mortgage payments. While the loan remains in your name, you are no longer responsible for the day-to-day management of the property.
5. Release of Liability (Optional)
In some cases, the seller may be able to negotiate a release of liability from the lender. This can be especially important if you’re worried about being held accountable for the mortgage if the buyer defaults on payments. However, this is not always possible, and it’s important to discuss these terms upfront.
Benefits for New Orleans Homeowners
- Financial Flexibility: If you are struggling with debt or unable to afford mortgage payments, a “subject-to” sale can offer the flexibility to walk away without a major financial burden.
- Time-Saving: Traditional real estate transactions can take months, but with a “subject-to” sale, you could close in as little as a few weeks.
- No Need for Repairs: Most “subject-to” buyers are investors who are willing to take on properties in less-than-perfect condition. This means you won’t need to invest time or money into repairs before selling.
- No Need for Traditional Financing: If you are dealing with a property that has low equity or requires major repairs, finding a buyer who qualifies for a traditional mortgage can be difficult. “Subject-to” sales open the door to buyers who may not need traditional financing to close the deal.
Potential Risks and Considerations
While a “subject-to” sale can offer significant benefits, it is important to understand the risks involved:
- Mortgage Liability: Although the buyer takes control of the property and makes payments, the mortgage is still in your name. If the buyer defaults on the payments, the lender can still pursue you for the outstanding balance.
- Lender’s Reaction: While rare, some lenders may call the full loan balance due if they discover a “subject-to” transaction has taken place. This is known as a “due-on-sale” clause, and it could create complications in your transaction.
- Complicated Process: Selling “subject-to” involves legal intricacies, and it’s highly recommended to work with an experienced real estate professional or attorney familiar with this process to protect your interests.
Conclusion
Selling a property “subject-to” can be an excellent option for New Orleans homeowners looking to avoid the lengthy, costly, and often stressful process of traditional property sales. Whether you need to sell quickly, avoid foreclosure, or deal with negative equity, this innovative strategy provides a way to transfer ownership without the need for immediate mortgage payoff. However, it’s crucial to understand both the benefits and risks, and to work with professionals who can guide you through the process smoothly and securely.
If you’re considering a “subject-to” sale, be sure to consult with a knowledgeable investor or real estate attorney who specializes in New Orleans properties. With the right guidance, this strategy can help you move forward with confidence, no matter your current situation.
Jeremiah Buys is experienced in buying houses “subject-to” the existing mortgage. Please reach out if you are thinking about selling your property ‘subject-to’.