Financing "Subject to"...is it legal?

Question

Does anyone know if you can enter into an agreement (in Texas) where the purchase contract states, "subject to existing financing via silent assumption" and it is legally binding? I believe the owner is still financially liable for the mortgage but how would the logistics be handled with owner? seller? bank?

Answer 1

That language leads me to think that the seller is trying to sell the place to someone who will assume a mortgage which is NOT contractually assumable. This is lender fraud on the part of that seller.

RUN away from such a deal as fast as you can run. It is NOT legal.

Answer 2

Not sure about Texas, but taking a property subject to the existing fiancing is perfectly legal in Virginia, and I think it is everywhere...the issue with subject-to financing is whether the mortgager or Note maker will call the loan due as a result of a breach of the due on sale clause that is incorporated into each mortgage note. The key to the transaction is to make the purchase as invisible as possible to the note holder so that in the absence of default, they will not know that the original mortgagee is not on title to the property. The main way in which this is done is the use of land trusts that incorporate the name of the old owner (buying a property off Mr. Jones would yield the Jones Family Trust as the buyer), and the beneficiary of the trust is declared as the new buyer....we like to call it the 'informal assumption', in that we do not ask the noteholder for permission when transferring title and responsibility for the mortgage.

Answer 3

That's right, and furthermore, you would be at risk of losing the property through foreclosure yourself, even if you pay the seller on time, if he is in default for any reason, including doing a "silent" (read "fraudulent") assumption. Any contract you do would be legally binding to you and fraught with risk.