Subject-To Mortgage Sales in Texas: A Seller's Guide

Short answer

In a subject-to sale the buyer gets your deed, but your loan stays in your name. Federal law lets the lender call the loan due on most sales, late payments are reported on your credit, and Texas adds disclosure, wrap-loan and contract-for-deed rules.

"Subject to the mortgage" means the buyer takes the deed to your house while your loan stays where it is. The buyer may promise to make your monthly payments, but the lender never agreed to swap borrowers. Your name stays on the note. This guide explains the federal and Texas rules and the seller's risk.

It is the statewide explainer. If the house is in Tarrant, Dallas, Collin or Denton County, our DFW guide to subject-to sales covers county fraud alerts, tax lookups and local help. Our guide to someone taking over your payments compares the options.

What the buyer gets and what you keep

A home loan has two pieces. The promissory note is your personal promise to repay. The deed of trust is the lien that lets the lender foreclose on the house if the note is not paid. In a subject-to sale, only the house changes hands. The note and the lien stay exactly as they were.

The buyer gets: title to the house, the right to live in it or rent it out, and any equity it builds.
You keep: the debt, the lender's right to collect it from you, and the credit history tied to the account.
The lender keeps: its lien on the house and every right in the loan documents, including the due-on-sale clause.

That is the core difference from a formal assumption, where the lender reviews the buyer and may release the original borrower. Without that release, deeding the house away does not end your obligation on the note.

The due-on-sale clause and the federal law behind it

Many home loans include a due-on-sale clause. Federal law defines it as a contract term that lets the lender, at its option, declare the whole balance due if any part of the property, or an interest in it, is sold or transferred without the lender's prior written consent.

The statute is 12 U.S.C. 1701j-3, enacted as part of the Garn-St Germain Depository Institutions Act of 1982. It says a lender may enter into and enforce a due-on-sale clause even where a state's constitution, laws or court decisions say otherwise. Note the word "option": the lender may call the loan, but the statute does not require it to.

Transfers a lender may not use to trigger the clause (12 U.S.C. 1701j-3(d), for residential property with fewer than five units): a junior lien that does not transfer occupancy; a purchase-money lien for household appliances; a transfer on the death of a joint tenant; a lease of three years or less with no option to purchase; a transfer to a relative after the borrower's death; a transfer where the borrower's spouse or children become owners; a transfer to a spouse under a divorce decree or separation agreement; and a transfer into a living trust where the borrower stays a beneficiary and occupancy does not change.

A sale to an unrelated buyer is not on that list. Neither is a sale where the buyer keeps the payments current. If your situation is close to one of the listed transfers, such as an inherited house or a divorce, an attorney can tell you whether the exception fits your facts.

Your credit stays tied to the loan

Because the loan is still yours, the servicer reports it under your name. If the buyer pays late, the late payment is your late payment. If the buyer stops paying, the default and any foreclosure are on your record, not the buyer's. The Consumer Financial Protection Bureau says credit reporting companies can generally report most negative information for seven years.

You have no legal control over the house after the deed is signed, but you carry the result of how the loan is handled.
Monthly statements and default notices go to whatever address the servicer has. If they go to the buyer, you may not see a problem until it is on your credit report.
The balance remains an open debt in your name, which other lenders will see when you apply for credit.

Hazard insurance: whose policy covers the house?

Your loan documents likely require you to keep hazard insurance on the house; your deed of trust will say. After a subject-to sale, that creates two questions. First, does the existing policy still protect anyone? A policy is written for a named insured with an interest in the property, so ask your insurance agent how a deed transfer affects your coverage before anything is signed. Second, what happens if the lender decides the requirement is not being met?

Federal Regulation X answers the second question. A servicer may charge you for force-placed insurance, coverage it buys to protect the house, only when it has a reasonable basis to believe the required insurance is not in place. Before charging, it must mail a first notice at least 45 days ahead and a reminder at least 15 days ahead. If the servicer then receives proof of proper coverage, it has 15 days to cancel the force-placed policy and refund those charges. Force-placed premiums are billed to the borrower, which is you.

Texas law speaks to the buyer's side too. The wrap-loan disclosure in Finance Code Sec. 159.101 must include a notice that insurance kept by a seller, lender or anyone other than the buyer may not cover the buyer for a loss or liability.

The Texas lien disclosure: Property Code Sec. 5.016

Under Property Code Sec. 5.016, a person conveying a home that will still carry a recorded lien must give a separate written disclosure, in at least 12-point type, to the purchaser and to each lienholder. It is due at least seven days before the earlier of the conveyance or the signing of a contract that binds the purchaser.

The disclosure must identify each lienholder and the debt it secures, state the interest rate, installment amount and account number, say whether the lienholder has consented to the transfer, give the details of any insurance policy and the property taxes due, and open with a warning that the lienholder could demand full payment if the property is conveyed without its consent.

A violation does not undo the conveyance. If a contract is signed without the notice, the purchaser may generally terminate it within seven days after receiving the notice.
The section lists transfers it does not cover. Two matter here: a sale where the purchaser obtains a title insurance policy, and a sale to someone who has bought or sold real estate interests four or more times in the past 12 months.
Because the notice goes to each lienholder, a seller who follows the section tells the lender about the transfer.

When the deal is a wrap: Finance Code Chapter 159

Some subject-to deals turn into wraps, where the buyer signs a new note for the full price and the old loan stays in place underneath it. Texas calls this a wrap mortgage loan, and Finance Code Chapter 159 regulates it. The chapter took effect January 1, 2022.

If you, the seller, carry financing for the buyer while your loan stays on the house, the chapter may treat you as the wrap lender. An owner who makes no more than three wrap loans in any 12 consecutive months is exempt from the whole chapter, not only its licensing rule, and the chapter does not apply to the sale of the wrap lender's own homestead. When the chapter applies, key rules include:

Licensing. A person may not make a wrap loan without a license or registration under the state's mortgage lending laws, unless exempt.
Disclosure and rescission. The wrap lender must give the borrower a disclosure at least seven days before the loan agreement, with the Sec. 5.016 lien details plus the insurance notice. If the borrower receives it on or before closing, the borrower may rescind within seven days of receiving it.
Closing. A wrap lien is void unless the loan and the conveyance are closed by an attorney or a title company.
Payments held in trust. Whoever collects the wrap payments holds them in trust and owes the borrower a fiduciary duty to pay the underlying loan, taxes and insurance.

The Texas Department of Savings and Mortgage Lending lists Chapter 159 among the laws it administers, with wrap rules in Texas Administrative Code, Title 7, Chapter 59.

Contract for deed and lease-option versions

Sometimes the offer is a contract for deed or a lease with an option to buy, not a deed. Texas treats those as executory contracts when the home is the purchaser's residence. Property Code Sec. 5.062 says a residential lease combined with an option to purchase counts as an executory contract for these rules.

Sec. 5.085 then says a seller may not sign an executory contract unless the seller owns the property free of liens, with narrow exceptions. One allows a lien from the loan the seller used to buy the house, but only if several conditions are met, including an advance written disclosure, a lien no larger than what the purchaser owes, a lienholder that does not prohibit the arrangement and agrees to accept payments from the purchaser if the seller defaults, and specific covenants in the contract. An attorney should check any contract for deed against these sections before you sign.

Questions to take to a professional

Bring these questions to a Texas real estate attorney, a HUD-approved housing counselor or your loan servicer:

What does my deed of trust say about transfers, and what happens if the lender calls the loan?
How will I see, every month, that the payment was made?
Who insures the house after the transfer, and is my lender named on that policy?
Does Property Code Sec. 5.016 or Finance Code Chapter 159 apply to this deal?
What documents will be recorded, and who closes the transaction?

If you would rather pay off the loan

A sale that pays your loan off at closing ends the note, the lien and the credit link in one step. When Cash Home Advisors buys a house, we pay all closing costs and can close in 7–14 days. Your loan payoff comes out of the sale price at the title company, and you see the closing statement before you sign.

You can request a cash offer or read how our process works. If you are behind on payments, see how foreclosure works in Texas, and if the goal is clearing debt, our guide to selling a house to pay off debt walks through the payoff.

Want a cash offer instead?

We buy Texas houses as-is, pay all closing costs, and can close in 7–14 days.

Get my cash offer or call (817) 635-0743

Frequently asked questions

Is a subject-to sale legal in Texas?

Texas law does not ban transferring a house while a loan stays on it. It regulates parts of these deals instead: Property Code Sec. 5.016 requires a written lien disclosure in many transfers, and Finance Code Chapter 159 covers wrap loans. Separately, most loans carry a due-on-sale clause that the lender may enforce.

Will my lender find out if I deed my house to someone else?

It may. When Property Code Sec. 5.016 applies, the seller must send the lien disclosure to each lienholder as well as to the buyer, so a seller who follows that statute tells the lender about the transfer.

Can the lender call my loan due if the payments are current?

A due-on-sale clause lets the lender, at its option, demand the full balance when the property is sold or transferred without its written consent. Federal law (12 U.S.C. 1701j-3) lets lenders enforce that clause, apart from a short list of family, death, divorce and trust transfers. On-time payments are not one of the listed exceptions.

Does a subject-to sale remove the loan from my credit report?

No. The loan stays in your name until it is paid off or the lender releases you. Late payments on it can be reported against you, and the CFPB says most negative information can stay on a credit report for seven years.

Sources

General information, not legal or tax advice. Talk to a Texas attorney or CPA about your situation.