What Happens to the Mortgage in a Subject-To Purchase?

"Subject-to" investing is one of the most powerful tools in creative real estate, but it often raises one big question: what happens to the seller's mortgage?

Whether you are the buyer, the seller, or an agent involved in the transaction, understanding how the existing mortgage is handled is essential. Here is how it works and how we use this strategy safely and profitably at Mac Does REI.

What Does “Subject-To” Mean?

A subject-to purchase means the buyer takes ownership of the property subject to the existing mortgage. The loan remains in the seller’s name, but the deed transfers to the buyer.

In simple terms:

• Title transfers to the buyer
• The mortgage stays in place
• The buyer agrees to make the monthly payments

Who Pays the Mortgage?

The new buyer makes the payments even though the loan remains in the seller’s name.

At Mac Does REI, we typically set up automatic drafts from our business account to ensure the mortgage is paid on time. This protects both our investment and the seller’s credit.

Is It Legal?

Yes, subject-to transactions are legal in all 50 states. The key is to structure them correctly, with:

• Full disclosure to the seller
• Clear documentation
• Proper title transfer
• Responsible handling of insurance and escrow

What About the Due-on-Sale Clause?

Most mortgages include a due-on-sale clause, which allows a lender to call the loan due if the title transfers. In practice, this is rarely enforced as long as payments remain current.

Still, we minimize risk by using strategies such as:

• Land trusts
• Insurance adjustments
• Proper legal structuring

Why Sellers Agree to This

Many sellers choose subject-to because they are facing challenges such as:

• Foreclosure
• Divorce
• Relocation
• Inherited property

Subject-to provides relief without requiring repairs or a credit-worthy buyer. We take over the responsibility, and the seller walks away clean.

What Happens Long-Term?

After taking over a property subject-to, we may:

• Keep it as a rental
• Sell it with a wraparound mortgage
• Refinance with a DSCR or private loan

The original mortgage remains in place until the end buyer refinances or the note is paid off.

The mortgage in a subject-to purchase does not disappear. It remains active, and as investors, our responsibility is to honor it. When handled correctly, subject-to deals create win-win outcomes for sellers, buyers, and investors alike.

Want to learn how subject-to deals can grow your portfolio? Book a free consultation with our creative finance team today.

Visit MacDoesREI.com to get started.