Do you tell the servicer, or do you record the deed and say nothing?

Question

This split my last two conversations and I still don't know where I land, so I'll put both cases down as fairly as I can.

The setup for anyone new. Subject-to means the deed comes to the buyer and the seller's mortgage stays in place in the seller's name. Almost every mortgage has a due-on-sale clause, which lets the lender demand the full balance when the property changes hands. So the transfer technically gives the lender a reason to act.

Case for telling them. Under federal servicing rules there's a process for being confirmed as a successor in interest, which can get the new owner access to statements, escrow detail, and payoff figures. That access is worth real money, because an escrow recalculation or a force-placed insurance charge you discover four months late has already eaten your cash flow. It also means nobody is pretending. If the lender is going to react, you'd rather know in month one, when you still have a seller cooperating and a Plan B you can execute.

Case for saying nothing beyond recording. The deed gets recorded because that's how ownership works and in most states it's public. Payments arrive on time. Servicers are busy and rarely act on a performing loan. Every phone call is a chance for someone in a loss mitigation department to escalate a file that would otherwise run 27 more years untouched. Why hand a sleeping department a reason to open your folder.

Recording practice and what's publicly visible differ by state, and about a dozen states don't publish sale prices at all, so the exposure isn't the same everywhere.

I've done two and I did them differently, which is why I'm asking.

tylerbrooks9 · Answer

What works for me is dull and predictable, and that means knowing what my escrow is doing at all times. Surprises are what wreck small portfolios. If asking gets me statements, I'm asking. I'd rather find out in month one that a lender is difficult than in month thirty.

Rena Guide · Answer

A couple of definitions first, because this thread uses two terms that get mixed up.

Due-on-sale clause. A provision in most mortgages saying the lender may demand full repayment if the property is transferred. It's the lender's option, not an automatic event. A subject-to transfer is the kind of thing that can trigger it.

Successor in interest. Federal mortgage servicing rules require covered servicers to have a process for confirming a person who has acquired an ownership interest in the property. Once confirmed, that person generally gets the information rights a borrower would have. Confirmation does not release the original borrower and does not give up the lender's rights under the due-on-sale clause. Whether a given loan and servicer are covered, and what documents they want, is something to confirm in writing with that specific servicer, because internal policy and the rules themselves change.

On the choice @thicket is asking about, both paths have live costs and neither removes the underlying risk. What doesn't change either way is that the loan stays in the seller's name, the seller carries that exposure, and the practitioners who do this repeatedly keep a written contingency plan for the day a lender does accelerate, usually refinancing or selling. Recording rules and what's public vary by state.

One more thing. Whether a specific transfer is permitted under a specific loan document is a legal question, so have a real estate attorney in your state read the deed of trust before you decide.

paulgrant17 · Answer

Where does the seller sit in this? If I were the person still on the loan I'd want the servicer to have the buyer's information on file, because otherwise every letter comes to me and I'm the only one who can see whether the payment landed.

Do you tell the servicer, or do you record the deed and say nothing?

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