We closed a subject-to transaction where the HUD showed cash to seller: $0. Zero dollars. The buyer covered everything \u2014 closing costs and roughly $14,000 to reinstate a loan that was barreling toward foreclosure.<\/p>\n
Everyone I tell that to expects me to describe a deal gone wrong. Nope. The seller got out clean, kept their dignity, and stayed in the home through the holidays. The buyer got into a performing asset with a loan at a rate that hasn’t been available on the open market for years.<\/p>\n
That’s what subject-to looks like when you stop trying to force traditional deal math onto a situation that isn’t traditional. Here’s the step-by-step, with the numbers that actually matter at each stage.<\/p>\n
Ask for this month’s mortgage statement. Not last year’s escrow analysis. The current one.<\/p>\n
Four numbers you need before the first conversation with a seller:<\/p>\n
That last one is where most agents get blindsided. “A few payments behind” could mean $3,600 or it could mean $18,000 after late fees and the lender’s attorney charges. You need the real number before you sit down at the table, not after you’ve already promised the seller you can make this work.<\/p>\n
The mistake that blows this step:<\/strong> Estimating the payoff from a mortgage calculator and a Zillow home value. A $40,000 gap between estimated and actual payoff has killed more deals at the closing table than any disclosure problem ever has.<\/p>\n We built the Sub+To Comparison Calculator for exactly this conversation. Enter the existing loan terms, your proposed hold period, and the expected resale value. It outputs:<\/p>\n That last comparison is your seller presentation. If the traditional sale nets a distressed seller $6,000 after commissions, closing costs, and payoff \u2014 and a back-end lien structured into the sub2 gets them $18,000 two years from now \u2014 you have a real conversation.<\/p>\n If it doesn’t pencil that way, move on. The spreadsheet is telling you something. Don’t talk yourself into a deal the numbers are walking away from.<\/p>\n The mistake that blows this step:<\/strong> Going in with gut feel and round numbers. You’ll either undershoot your offer or pitch figures you can’t defend when the seller’s son-in-law shows up with a yellow legal pad full of questions.<\/p>\n Most Texas brokerages won’t touch subject-to. The unofficial policy is usually “we don’t do that here,” delivered about two weeks after you’ve already told the seller you can close their deal this way.<\/p>\n At StepStone, we’ve built the actual infrastructure to do these deals \u2014 the written policy, the disclosure stack, the training, the oversight. That’s not something most brokerages have bothered to put together, because most brokerages are not trying to do deals that require any thinking beyond a standard MLS listing.<\/p>\n Two minutes. That’s all it takes to ask your broker their actual written position on subject-to transactions before you make a promise to a seller you might not be able to keep.<\/p>\n The mistake that blows this step:<\/strong> Getting a verbal “yes” from the seller, going back to the office, and finding out your broker says absolutely not. That conversation with the seller is not recoverable.<\/p>\n Texas has specific disclosure requirements when a licensed agent acquires property subject-to existing financing. The TREC 1-4 contract has provisions that apply here \u2014 I look at that document roughly 20 times a day, and the language around existing liens is not something you improvise at the table.<\/p>\n Walk the seller through what “subject-to” means in plain language: their loan stays in their name. The deed transfers to you. You make the payments. If you stop making payments, their credit takes the hit. That’s the deal \u2014 they need to understand it before they sign anything.<\/p>\n Have the written disclosure ready at the same meeting where you’re presenting the offer. The “verbal interest” phase should last hours, not days. Every day between verbal yes and written paperwork is a day for second thoughts, Google searches, and a relative who listened to a podcast about real estate fraud.<\/p>\n The mistake that blows this step:<\/strong> Getting a handshake, going home to write up the paperwork, and giving the seller 72 hours to type “subject-to real estate risks” into YouTube.<\/p>\n If the seller has little or no equity, don’t try to manufacture cash you don’t have. The structure that actually closes these deals:<\/p>\n Take over the existing loan. Record any additional seller consideration as a lien on title \u2014 due and payable at resale or refinance, not at closing.<\/p>\n Concrete example: Seller owes $178,000. Property is worth $192,000. You could try to squeeze $14,000 in cash out at closing, or you could record a $16,000 back-end lien and close next week. Seller gets immediate payment relief \u2014 the mortgage they can’t make disappears tomorrow \u2014 plus a lump sum at resale that beats what they’d net on the open market after commissions and closing costs.<\/p>\n If the seller is in distress and needs some cash before resale, that back-end number is often negotiable. A seller four months behind and staring at a foreclosure auction date will frequently accept less on the back end for the certainty of getting out clean now.<\/p>\n The mistake that blows this step:<\/strong> Trying to structure cash upfront when the equity isn’t there. You end up with a deal that doesn’t cash-flow, a seller who’s confused about why you’re offering them money the property doesn’t support, or both.<\/p>\n On our zero-cash-to-seller deal: the buyer covered all closing costs plus approximately $14,000 to bring the delinquent loan current. The seller’s consideration was non-cash \u2014 the right to stay in the home through the holidays, then move out on an agreed date. When the math works for both sides, a $0 HUD is not a failed deal. It’s just a different structure.<\/p>\n What you cannot do is estimate the reinstatement. Get the actual figure from the servicer’s loss mitigation department in writing, before you’re under contract. Three months of missed payments at $1,900 per month is $5,700 before late fees. Add the lender’s attorney charges if they’ve already engaged counsel, and you can be looking at $8,000\u2013$14,000 on what the seller described as “just a little behind.”<\/p>\n Build that number into your offer. Price the deal assuming the reinstatement is real, because it is.<\/p>\n The mistake that blows this step:<\/strong> Taking the seller’s word for how behind they are. Pull the reinstatement quote early. If the number doesn’t work at your offer price, adjust the offer or walk away \u2014 don’t hope the number shrinks by closing day.<\/p>\n Subject-to deals are not complicated. They’re just different from the transaction math you were taught in pre-license class. Stop evaluating them like traditional sales and start asking the actual questions: What’s the existing loan worth? What does this cash-flow at? What does the seller actually need to get out of this situation?<\/p>\n Sometimes what they need most is $0 at closing, someone to bring their loan current, and a clean exit. That deal closes. And it closes better than a lot of the ones with a number in the “cash to seller” box.<\/p>\n <\/p>\n <\/p>\n
\nStep 2: Run the Spreadsheet Before You Open Your Mouth (30 Minutes)<\/h2>\n
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\nStep 3: Confirm Your Broker’s Sub2 Policy Before You Promise Anything (2 Minutes You Cannot Skip)<\/h2>\n
\nStep 4: Present with Written Disclosure at the Seller Meeting \u2014 Not After (The Meeting Itself)<\/h2>\n
\nStep 5: Structure Low-Equity Deals with a Back-End Lien, Not Upfront Cash (The Math That Makes Them Work)<\/h2>\n
\nStep 6: Get the Reinstatement Quote in Writing Before You Go Under Contract (The $14k Detail)<\/h2>\n
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