Subject-To and Wraparound Deals in Texas: Read This Before You Shake Hands

The buyer gets the deed and makes the payments on the seller's existing loan, but the loan stays in the seller's name. If the buyer stops paying, the seller's credit takes the hit. And because most loans have a due-on-sale clause, the lender could demand full payment after the transfer. Great for no one if it goes wrong.

The seller sells the home and finances the buyer with a new, larger loan that "wraps around" the seller's existing mortgage. The buyer pays the seller; the seller keeps paying the original lender. If the seller doesn't pass the money along, trouble.

Texas tightened its wrap rules in recent years. Under Texas Finance Code chapter 159, residential wrap lenders generally need to be licensed or registered, must give the buyer a separate written disclosure at least 7 days before the loan agreement, and the buyer can rescind within a set period after receiving it. Other notices are required under the Property Code for certain seller-financed and subject-to transfers.

This is exactly the kind of thing where "my cousin's friend did one" isn't legal advice.

• A Texas real estate attorney and a title company from the start
• Payments through a third-party loan servicer, so everyone can see the underlying loan is paid
• Proper insurance naming the right parties
• Written terms for what happens if the lender calls the loan due

If a deal only works if nobody asks questions, it doesn't work.