Most brokers never teach you this because they’ve never done it and they’re scared of the liability. That’s their problem. Subject-to deals are legal in Texas. They’re viable. And if you structure them wrong as a licensed agent, you will lose your license. So here’s the actual process, with the numbers that matter at every stage.<\/p>\n
In a subject-to, you buy the property subject to the existing mortgage. The deed transfers to you or your entity. The loan stays in the seller’s name. The lender is not a party to the transaction.<\/p>\n
Your subject-to deal is only interesting if the underlying loan carries a rate worth inheriting. A 30-year fixed originated between mid-2019 and early 2022 likely sits between 2.75% and 4.5%. On a $200,000 balance, that’s a P&I payment around $900 to $1,050. That same $200K balance at today’s 7.5% costs $1,398\/month. That spread is why the deal exists.<\/p>\n
Work pre-foreclosures, estate sales, divorce situations, and job relocations. Sellers need a real reason to hand over a deed without a full payoff.<\/p>\n
The mistake here:<\/strong> Chasing sellers who are current on payments and comfortable in the house. If they don’t have a reason to move, you’ll spend three weeks building rapport before they tell you no.<\/p>\n Call the servicer with the seller’s written authorization. Get: current principal balance, interest rate, monthly PITI, escrow balance, and whether the loan is current or delinquent. If it’s delinquent, you need the exact reinstatement amount in writing.<\/p>\n Then run your spread fast. If a DFW property rents for $1,800\/month and the PITI is $1,150, your gross monthly spread is $650. After a 10 to 15% reserves allocation, you’re netting around $500\/month in cash flow if you hold. If the spread drops below $300 after reserves, this exit doesn’t work and you need a different one.<\/p>\n The mistake here:<\/strong> Skipping the escrow verification. If there’s a shortfall in the escrow account, you walk into an immediate payment increase on a loan you were counting on staying flat.<\/p>\n In Texas, your purchase contract runs through TREC forms with an addendum documenting the existing financing you’re taking the property subject to. The TREC contract gets you to closing. The subject-to agreement, drafted by a real estate attorney who actually handles creative transactions, is the document that protects both parties afterward.<\/p>\n Budget $500 to $1,500 for attorney drafting. That agreement needs to cover: the loan details you’re assuming custody of, the seller’s ongoing liability on the note, the due-on-sale clause and what it means, and what happens if the lender calls the loan. Don’t use a template written for a different state.<\/p>\n The mistake here:<\/strong> Treating the TREC contract as the complete transaction. It’s not. The attorney-drafted agreement is where the deal actually lives.<\/p>\n As a licensed Texas agent purchasing property for yourself or your entity, TREC requires written disclosure of your license status to the seller. This goes in the addendum, in a standalone disclosure form, and on the record in writing. Not verbally.<\/p>\n You also disclose the due-on-sale clause. The seller needs to understand that their name stays on a loan they no longer hold the deed against, and that the servicer has the contractual right to call the balance due if they discover the transfer. In practice, servicers rarely exercise this when payments stay current, but the seller cannot make that decision without knowing the risk exists.<\/p>\n I walk through this in our Monday calls every time it comes up: document everything, date everything, get signatures. A properly documented deal is the deal you can defend to TREC.<\/p>\n The mistake here:<\/strong> Verbal disclosures only. If it’s not in writing with a date and a signature, it didn’t happen.<\/p>\n Some title companies will see “subject to existing financing” in the addendum and call you to say they can’t help. Find your title company before you have a contract. Ask at your local REIA. In the DFW Metroplex, there are fewer than ten title companies that handle creative transactions regularly and know how to insure title on a deed transfer without a payoff.<\/p>\n Closing costs on a subject-to run $1,500 to $2,500 on your side, not including any delinquency cure amount. Timeline with an experienced creative-transaction title company: 21 to 30 days. Budget 45 days if you’re breaking in someone new to the process.<\/p>\n The mistake here:<\/strong> Sending the deal to the title company your regular buyers use. They’ll spend two weeks deciding they can’t do it, and you’ve burned a month.<\/p>\n Three realistic exits on a Texas subject-to:<\/p>\n Hold as rental.<\/strong> Using the numbers above, $650 gross spread nets roughly $500\/month after reserves. If you cured a $4,000 delinquency and spent $2,000 on closing costs, you’re into the deal for $6,000 and clearing $6,000\/year. That’s 100% cash-on-cash return in year one.<\/p>\n Sell on a wrap.<\/strong> Carry a new note to your retail buyer at 6.5 to 7% while your underlying loan sits at 3.2%. You collect the spread on the rate and the margin between your purchase price and your sales price simultaneously.<\/p>\n Flip retail.<\/strong> Plan for 90 to 120 days from close to resale in a normal market. Add your full acquisition cost, including the cure amount and closing costs, before you price the flip.<\/p>\n Whichever exit you choose, the numbers for that exit have to work before you execute Step 3. If you discover in Step 6 that the deal only pencils as a rental and you’ve already signed contracts around a flip timeline, you’ve backed yourself into a corner.<\/p>\n <\/p>\n <\/p>\n StepStone Realty: sponsorship at a brokerage that has closed these deals.<\/p>\n Get started with StepStone Realty<\/a><\/p>\n<\/div>\n <\/p>\nStep 2: Get the Full Loan Payoff and Verify the PITI<\/h2>\n
Step 3: Control the Property with an Attorney-Drafted Agreement<\/h2>\n
Step 4: Disclose Your License Status in Writing. Every Time.<\/h2>\n
Step 5: Close with a Title Company That Has Actually Done This Before<\/h2>\n
Step 6: Lock In Your Exit Before the Contract Is Signed<\/h2>\n
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