Jim. I Am Behind On My Mortgage. A Person Has Approached Me Offering To Take Over My Payments, Should I Consider This?
I would probably not allow someone to take over your payments unless you have absolutely no way to sell the property and are facing imminent foreclosure. It is possible to sign away your rights on a property(executing a quit claim deed) and leave someone with the obligation of making your ongoing mortgage payment. This is known as selling “subject to” the existing mortgage. There has been much written on subject to real estate transactions. A common practice is for the subject to buyer to make your back payments and then agree to make the payments going forward. This is usually done by a real estate investor or someone that currently is unable to obtain their own mortgage.
The question about foreclosure vs. allowing someone to take over your payments (selling subject to), is a very simple choice; sell subject to. In the world of real estate, there is probably nothing quite as bad as a foreclosure. So, despite the drawbacks of subject to sales, it is a much better option than a foreclosure.
When you sell your home on a subject to arrangement, you are still on the hook for the mortgage. Although you have given up all of your ownership rights in the property when you signed over the deed, you have not absolved yourself of any of your responsibilities to the mortgage. So, if the new owner does not pay your mortgage, you may still end up in foreclosure. This is an important fact to consider. Additionally, the mortgage company may (although it is unlikely) call the mortgage due if they find out that you have sold. There is a clause in virtually all mortgages that gives the lender the right to demand payment in full if you sell the property. In reality, most lenders won’t call the mortgage due if the payments are being made on time. Lenders don’t like subject to sales, but usually care only about payments being made on time.
Subject to sales are clearly better than a foreclosure, but still present a significant risk to sellers if the new owner does not make the payments. The new owner would lose the house if the payments are not made, but you would have the foreclosure on your record. If you are already facing foreclosure, selling subject to may not be a bad idea, since at least you are giving yourself a chance that the new owner will make the payments since you can not.
Subject to transactions are handled differently depending on what state the property is located in. In some states, you will not be able to transfer ownership by signing over a deed (as we can in Florida). There are other means to transfer your ownership in each state, and you will find a plethora of information on this by simply doing a Google search for Subject To Real Estate Transactions and the name of your state.
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