Definition
Subject-to financing lets a buyer take over a property "subject to" the existing mortgage without formally assuming it. The original borrower remains on the note, but the buyer controls the property and makes payments. Due-on-sale enforcement is unpredictable.
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In a subject-to transaction, the buyer takes title to the property and makes the existing mortgage payments but doesn't formally assume the loan. The original borrower remains obligated on the note but the buyer controls the property. Subject-to deals work when buyers can't qualify for new financing but can make existing payments. The key risk is the due-on-sale clause: most mortgages allow lenders to demand full payment if the property is sold. Some lenders choose not to enforce due-on-sale if payments continue, but enforcement is unpredictable. Subject-to deals are controversial and require legal expertise.
Pro Tip
Subject-to deals are risky; consult an attorney before entering such arrangements to understand liability and due-on-sale implications.
Example
A buyer with poor credit takes over a property subject to a $300,000 mortgage at 4% with 15 years remaining; the buyer makes payments but the original borrower remains liable.