tl/dr: Are other real estate professionals seeing an increase in investors purchasing properties subject to Seller's existing mortgage without assuming any liability?

I live and work in Lubbock, which is a much smaller market than many TexAgers, but I was curious if you all are seeing more and more of these wonky real estate transactions. We've had an increase in potential clients call in to ask us to prepare documents for the purchase of real estate "subject to" seller's existing mortgage. I'm not sure if the influx is because of some Saturday seminar on 'how to get rich off real estate without putting in a dime of your own money', or what, but we have thus far refused to get involved. I'm curious if others are seeing these, and how they are handling them.

In the past, we've prepared deeds that are subject to a prior lien, but they have typically been in family situations. The current influx that we have seen are not an assumption and they are not a wraparound. The Buyer will contract to purchase a property for $100k, with say $5k down. Then they'll back out what's owed on the current mortgage, say $80k, and seller finance the remainder at little to no interest (the most current one had 0.0% interest). In the end, Buyer will own property, owe Seller $15k on very favorable terms, and Seller will remain liable on the $80k first lien (though I suspect Buyer has agreed to make these payments on Seller's behalf).

The most current contract I saw was the epitome of an unconscionable contract, and clearly the creation of someone other than the Buyer who supplied it. The contract was very clear that Buyer was taking the property subject to the mortgage, would assume no liability under the prior mortgage, the seller financed portion was to be non-recourse, and, at any time, the Buyer could quitclaim the property back to the Seller and be free of any and all liability. I believe that Buyer has assured the Seller that Buyer will make the scheduled payments to the first lien holder on Seller's behalf, but there is certainly nothing on paper to support that. In fact, the contract was sworn to by Buyer and Seller before a notary, which is usually a red flag. If the first lien holder accelerates their loan as a result of a breach of the due on sale clause, the new Buyer can scramble for financing or just quitclaim the Property back to the Seller (which creates a number of title issues) and walk away, leaving the Seller to sort out a mess.

Of course, I'm a proponent of the right to contract, the free market and strongly believe in Buyer (or Seller) beware, but this seems like something that will create a rash of bad case law or onerous legislation. The types of Sellers that would ever agree to this are probably the types you would expect.

The buyers are doing it to get around the due on sale clause in the deed of trust and keep their liability at $0. The issue is if the bank decides to call the note, the seller is in a world of hurt. It seems illegal, and probably should be.

we have had situations here where people are upside down on their homes, and will try to sell through a Contract for Deed (apparently easier to do here than Texas), where a memorandum is recorded initially, and the warranty deed and special warranty deed are held by the escrow agent until the contract is either completed or the Buyer defaults and seller has to go through foreclosure on them. We will only facilitate those contracts if there are no liens on the property or if the mortgage is paid in full at or before closing. I have seen some where someone else will draw up the docs and facilitate the closing where the buyer basically just pays the sellers mortgage. It can be a huge headache (that we wont deal with) when the buyer defaults and the seller finds out from their bank, and then they have to decide whether they want to make the payments themselves, or take the credit hits and potential foreclosure in their name. We also occasionally also see lease with options in these situations.

"Subject to" transactions have been around for a while and heavily used by some investors in the bigger markets in Texas. That strategy can easily be abused when dealing with desperate or unsophisticated sellers and sleazy investors, but on the flip side it can be extremely useful and beneficial for sellers when dealing with honest investors. I've seen it work it extremely well for some sellers because it can make a deal where there otherwise wouldn't be.

Full disclosure, I've done it once. It was complicated and not what I initially I wanted to do, but due to some problems on seller's side it became only option to make it work. Had we not exercised that option the seller would have lost quite a bit of money.