What is Subject-To?
A "subject-to" deal is when an investor buys a property and takes title, while leaving the seller's existing mortgage in place — the investor makes payments on the seller's loan. Used to acquire properties with locked-in low rates or when the seller is behind on payments and needs to walk away.
Subject-to is the most common creative-finance structure for acquiring properties with sub-market interest rates. Pre-2022 mortgages at 3-4% are valuable inventory in a 7% market — taking them subject-to lets the investor preserve that rate.
The major risk is the due-on-sale clause in virtually every mortgage: when the lender discovers the property has been transferred, they have the contractual right to call the loan due in full. Lenders rarely exercise this right when payments are current and rates have risen (calling the loan would replace a low-rate asset with a payoff and cash they need to reinvest at the prevailing higher rate), but the risk exists.
Sub-to operators mitigate due-on-sale risk via land trusts (which obscure the transfer), insurance changes that don't trigger lender notifications, and same-day payoff readiness. Always work with an attorney experienced in sub-to deals — paperwork errors create real legal exposure.
Seller owes $180,000 at 3.25% on a $250,000 home, can't afford payments, needs to walk. Investor pays seller $10,000 cash for the deed, takes property subject-to the existing mortgage, continues the $1,150/mo payment to the lender. Investor now owns a property worth $250,000 with only $10,000 down and a 3.25% mortgage.
Concepts that connect.
Creative finance is the family of non-conventional real-estate transaction structures — subject-to, seller financing, wraparound mortgages, lease options, land contracts. Used when conventional financing doesn't fit the deal or when the seller has motivation to preserve a below-market loan.
Seller financing (also called owner financing) is when the property seller acts as the lender — the buyer makes monthly payments directly to the seller instead of a bank. Used when the seller owns free-and-clear, wants ongoing income, or when the buyer can't qualify for traditional financing.
A wraparound mortgage ("wrap") is seller financing structured on top of (wrapping) the seller's existing mortgage. The buyer pays the seller; the seller continues paying their own mortgage. The wrap rate is higher than the underlying rate, and the spread is the seller's profit.
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