Mortgage Takeover
3 min read
What is Mortgage Takeover?
Mortgage Takeover is our term for a Subject-To deal where the seller has very low equity (typically less than 20%).
Key difference: In a standard Subject-To, the seller usually has some equity to receive. In a Mortgage Takeover, the seller's main benefit is getting out from under the mortgage payments - not receiving cash.
Is This "Carrying Paper"?
No. In a mortgage takeover, the seller is not "carrying paper." Carrying paper means the seller is acting like the bank and holding a promissory note (a written promise to pay). In this deal, the original bank or lender already holds the note. The buyer is simply taking over the payments that were already agreed upon.
When Mortgage Takeover Makes Sense
This strategy helps sellers who:
- Owe close to market value - Little or no equity to sell traditionally
- Are behind on payments - Need someone to catch up and take over
- Need to relocate - Can't afford two payments or wait for a sale
- Facing foreclosure - Need a fast exit before credit is destroyed
- Can't sell traditionally - Market issues or timing
Why This Works Best on Rent-Ready Homes
Mortgage takeovers work best when a property is already livable and stable. When a home is turnkey or rent-ready, payments can be made immediately.
Distressed properties often need large repairs, unknown costs, and time before they can be lived in or rented. In those cases, buyers would need to pay for repairs and make monthly payments at the same time. This increases the risk of missed payments and failed deals.
Creative finance is meant to solve a financing problem, not a construction problem. We do not imply that mortgage takeovers are good solutions for heavily distressed properties.
Real Example 1: Avoiding a "Bring Cash to Close" Situation
The Situation:
- Home Value: $250,000
- Mortgage Balance: $235,000
- Seller's Equity: $15,000 (6%)
- Monthly Payment: $1,800
The Problem:
A traditional sale would actually cost the seller money. Between a 6% real estate commission ($15,000) and standard closing costs (approx. $3,000), the seller would need to pay $3,000 out of pocket just to hand over the keys.
The Mortgage Takeover Solution:
- Buyer provides a small down payment ($5,000) to the seller
- Buyer takes over the $1,800 monthly payments
- Seller walks away with $5,000 cash instead of paying $3,000 to sell
- No commissions or closing costs for the seller
Real Example 2: Stopping Foreclosure
The Situation:
- Home Value: $250,000
- Mortgage Balance: $230,000
- Seller has lost their job and cannot make payments
- Seller is 4 months behind ($7,200 in arrears)
- The bank has started the foreclosure process
The Problem:
The seller is facing a total loss of their home and a destroyed credit score. They cannot sell traditionally because they have no cash to pay an agent or catch up on the missed payments.
The Mortgage Takeover Solution:
- Buyer pays the $7,200 in arrears immediately to stop the foreclosure
- Buyer takes over the ongoing monthly payments
- Seller's credit is saved and the foreclosure is canceled
- Seller can move on to a fresh start without a debt burden
Benefits for Low-Equity Sellers
- Exit without loss - Walk away without bringing money to closing
- Protect credit - Avoid foreclosure or short sale on credit report
- Fast resolution - Close in days, not months
- No out-of-pocket costs - Buyer handles everything
- Arrears cured - Buyer catches up on missed payments
Why Buyers Want These Deals
Investors actively seek mortgage takeovers because:
- Low entry cost - Take over payments with minimal cash
- Built-in equity opportunity - Property appreciation goes to buyer
- Existing low interest rate - Many of these loans have rates from before rate increases
- Motivated sellers - Terms are negotiable when sellers need solutions
Important Protections
For Sellers:
- Get written confirmation that buyer will make payments
- Have an attorney review all documents
- Use a trust structure for added protection
- Get notification rights if payments are missed
For Buyers:
- Verify the exact mortgage balance and payment amount
- Confirm no other liens on the property
- Get title insurance
- Have a clear exit strategy (refinance or sell)
Bottom Line
Mortgage Takeover is a win-win for desperate situations. The seller escapes a burden they can't handle. The buyer gets a property with minimal cash invested. When done correctly with proper documentation, everyone benefits.