In a subject-to purchase the buyer takes title while the seller’s existing mortgage stays in place, unpaid and in the seller’s name. The buyer makes the payments. Nothing is assumed, nothing is novated, and the lender is not asked. It is the cheapest way to acquire a property carrying a below-market interest rate — and it leaves both sides holding obligations that most descriptions of the strategy skip over.
The mechanics
The seller deeds the property to the buyer. The existing loan is untouched: same lender, same rate, same amortisation, still reported on the seller’s credit. The buyer typically pays the seller’s equity in cash, takes over the payments, and services the loan going forward. Consideration is usually small relative to a conventional purchase, which is the attraction — there is no origination, no appraisal-driven down payment, and no underwriting of the buyer.
What the seller is still carrying
The seller remains the borrower. The debt stays on their credit report and in their debt-to-income ratio, which can block their next mortgage. If the buyer stops paying, the seller’s credit takes the damage and the seller is the one the lender pursues. Any deficiency after a foreclosure is the seller’s. A seller entering one of these arrangements is extending unsecured credit to a stranger, and should be told so plainly.
What the buyer is carrying
Due-on-sale exposure, first — the lender may accelerate at any time. Beyond that: no control over the servicer relationship, since the buyer is not the borrower and may struggle to get payoff statements, escrow detail, or loss-draft cheques released. Insurance must be restructured so the buyer has insurable interest without the change itself flagging the transfer. And the loan cannot be modified, recast or ported, because the buyer has no standing to request it.
Documentation that decides whether this is survivable
The transactions that go wrong are almost always the under-documented ones. At minimum: a recorded deed, a written purchase agreement stating explicitly that title passes subject to the existing lien, an authorisation to release information signed by the seller so the buyer can speak to the servicer, a clear allocation of escrow and insurance responsibility, and a payoff or refinance deadline. Escrow the payments through a licensed third-party servicer rather than paying the lender directly — it produces a payment record both sides can rely on and gives the seller visibility that the loan is current.
Why this is a bridge and not a destination
A subject-to position is unstable by construction: the buyer owns a property encumbered by someone else’s loan, and the seller carries a debt on a property they no longer own. Neither party benefits from that state persisting. The resolution is a refinance into the buyer’s name, which extinguishes due-on-sale risk, releases the seller’s credit, and restores normal servicer access. For a rental this is usually a DSCR refinance, underwritten on the property’s rent rather than the buyer’s income, and permitting LLC vesting. Agree the deadline at purchase and write it into the contract.
Subject-To Real Estate Purchases FAQ
Yes, in all fifty states. Title can be conveyed while a lien remains. The question is not legality but whether the parties understand the due-on-sale right they are leaving in the lender’s hands.
It depends entirely on payment performance, which the seller no longer controls. On-time payments continue to report positively. Missed ones report against the seller. The mortgage also stays in the seller’s DTI, which commonly prevents them qualifying for their next home.
Yes, but the policy must reflect actual ownership — typically a landlord policy naming the new owner, with the existing lender retained as mortgagee. Leaving the seller as sole named insured risks a denied claim for lack of insurable interest. Speak to a carrier who writes investor policies before closing, not after.
Commonly twelve to twenty-four months — long enough to establish a rental history and satisfy lender seasoning, short enough to limit exposure. The refinance date should be a contractual commitment, not an intention.
Most DSCR lenders want six to twelve months of title seasoning before a cash-out refinance, and will want the property tenanted with a lease in place. Rate-and-term refinances are often available sooner. Requirements vary by lender, so confirm before you commit to a timeline.
You get a demand for the full balance, usually within 30 days, and you refinance, sell, or pay it. That is why the refinance is arranged in advance rather than in response — financing sourced under a deadline is financing priced badly.