Subject-to is a purchase structure in which the buyer takes title to a property while the seller's existing mortgage remains in place, and the buyer makes the payments on the seller's loan. The deed transfers; the debt does not — the loan stays in the seller's name, and most mortgages carry a due-on-sale clause that gives the lender the right (not the obligation) to demand payoff when title transfers. Used legitimately, subject-to serves sellers whose loan balance and timeline make a conventional sale unworkable — and it demands full written disclosure, reserves behind the payments, and usually third-party loan servicing, because the seller's credit is at stake for as long as the loan lives. Structures vary by state; get legal review.
The formula / structureNo formula — a structure whose viability test is: market rent (or exit) must comfortably carry the existing loan's PITI plus landlord costs and reserves.
Subject-To: a worked example
Worked example. Seller owes $168,000 with a payment (PITI) of $1,240/mo and is three payments behind; the home's as-is value is about $175,000, too thin for a conventional sale to solve the arrears. An investor brings the loan current, takes title subject-to, and rents the home at $1,650/mo. The seller's loan performs instead of foreclosing — provided the investor keeps performing, which is why the disclosures and reserves are the deal.
What affects Subject-To
- The existing loan's rate and payment (low legacy rates are the economic engine)
- Due-on-sale clause risk and the plan if the lender calls the loan
- Buyer's reserves and payment reliability
- State law and the quality of the written disclosures
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