Subject-to contract: what to have your attorney check

A subject-to deal is two agreements in one: a sale of the house, and a promise to keep paying someone else's loan for years. Standard purchase forms only cover the first. Here's the list to walk through with your attorney so the second one is in writing too.

This is not legal advice. Use a real estate attorney in your state before you sign anything.

The contract

1. The loan, described exactly. Lender, servicer, loan number, balance, rate, monthly payment, and loan type (conventional, FHA, VA). FHA and VA loans have their own rules for transfers.
2. "Subject to the existing financing" in plain words. That you're taking the deed, the loan stays in the seller's name, and you'll make the payments.
3. A due-on-sale disclosure the seller signs. A separate page saying the lender can call the loan because of this transfer, what you'll do if it does, and what it means for the seller's credit. What the clause lets a lender do.
4. A loan-verification contingency. The deal holds only if the servicer's figures match the seller's statement, and any arrears match the reinstatement quote.
5. Who pays what, and when. Mortgage, property taxes, insurance and HOA from the closing date on, and how any escrow balance is handled.
6. What happens if payments stop. Notice to the seller, a cure period, and the seller's rights. This protects the seller, and a seller who sees it written down is more likely to sign.

The state law check

7. Foreclosure-purchase laws. If the house is in foreclosure, some states require specific language and a cancellation window. California, for one, gives the seller until midnight of the fifth business day after signing (Civil Code 1695.4).
8. Wholesaling and assignment rules. If you plan to assign the contract, check your state. Texas, for example, requires you to tell a buyer in writing that you're selling a contract interest (Occupations Code 1101.0045).

The closing

9. Title search and an owner's policy. The existing loan shows as an exception. Look for other liens, judgments and unpaid taxes before you close, not after.
10. Insurance with no gap. A new policy effective at closing, with the lender listed as the loan requires. A lapse can trigger force-placed insurance at the lender's price, and a letter that draws attention to the transfer.
11. Authorization to talk to the servicer. A signed third-party authorization from the seller, so you can get statements and resolve problems on the loan.
12. Who receives the servicer's mail. Statements and notices go to the borrower. Agree in writing how the seller passes them to you, or how you'll watch the account, so a missed notice doesn't become a missed payment.

Before you get to the contract

The checklist only matters once you have a seller. The public list closest to a subject-to seller is foreclosure filings, and those owners decide slowly: across 99 counties, about 3 of every 100 sold off-market in the first 3 months after the filing and about 13 within a year. Which sellers say yes, and when. Read your county free to see how many filings it has.