Subject-to vs. Loan Assumption

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This isn't an attempt to be an ***.  I'm honestly curious.  I've been looking over contracts, how to get them filled out, and what all the different things mean.  The standard contract form here in TX doesn't contain anything called "Subject-to".  In fact, I can't find the term anywhere in the contract.  When I do read it over, it seems what we're really doing is assuming the loan.

Please, someone, explain what the difference is.  I'm currently under the impression "Subject-to" or "Sub-to" is just trendy lingo, and largely confusing to people on the outside.  It's even confusing to people on the inside.  =-)

Thanks in advance.

When you assume a loan you receive permission from the lender for you to take over the loan.  You will typically have to do a qualification, just as if you were getting a new loan.  Most residential loans don't allow for assumption.  Many commercial loans do allow assumptions.

Subject to, OTOH, is done without the lender's involvement or knowledge. It amounts to "taking over the payments". The loan remains in the original borrowers name and on their credit record. The deed and title insurance will list the loans taken subject to. A HUD-1 form has a line for this: 203. Existing loan(s) taken subject to. So, certainly not just "trendy lingo." For most residential loans this does violate the due on sale clause and gives the lender the right, though not obligation, to call the loan due.

I understand what you're saying, but the contract here in TX is filled out the same way whether you tell the lender or not.  In either case, you're taking over the payments, so I don't understand where the real difference is, at least as far as TX real estate law is concerned.

The HUD-1 line does clarify the naming, but why wouldn't you fill that out with the same thing whether you were doing an assumption or a subject-to?

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The real difference is that the lender has the right to call the loan if you buy a property subject to based solely on the fact ownership has been transferred.  If you buy it with an assumption they do not.

How you fill out the purchase contract is a different matter than assumption vs. subject to.

The bank doesn't give you direct permission to do a subject to loan. Unlike what a lot of people assume though they do very well know what is going on. My friend works in a bank and they see but the loans are very rarely truthfully almost never called in because they are happy to have a healthy performing loan. As to texas law I don't actually know but this was a very interesting topic.

Loans may not be getting called now. But if interest rates head back up I suspect calls will become much more frequent. When I first started considering buying, about 1984, OO rates were 15% and negative amortization was common. Inflation was high then, too, so not quite as bad as it would be now. When we finally did buy in 1987 is was an owner financed, 9% 15 year loan and we were very happy with it. And that was in TX. If we see those kind of rates again people holding subject to deals at 3-5% interest may be in trouble. When you buy subject to you better have a plan to pay off or refi the property. No such concerns with an assumed loan.