Understanding how buyers take over existing mortgage payments while the loan remains in the seller's name, and why this structure mirrors common estate planning practices.
A Subject-To acquisition is a real estate transaction where the buyer takes control of a property and agrees to make payments on the seller's existing mortgage. The key distinction: the mortgage stays in the seller's name, but the buyer becomes responsible for the payments.
When we say a buyer "buys" a property Subject-To, it means the ownership and control transfer to the buyer even if the mortgage stays in the seller's name. The seller is no longer managing the property or responsible for the day-to-day costs. The buyer is now the one responsible for keeping all payments current.
Think of it this way: The seller transfers control of the property, the buyer takes over the payment obligation, but the original loan paperwork remains unchanged at the bank.
Subject-To structures are not exotic or unusual. They mirror the same mechanics families use in estate planning every day. Consider these common scenarios:
A parent develops Alzheimer's and can no longer manage their affairs. The adult child places the home into a revocable living trust with themselves as trustee. The parent remains the beneficiary. The mortgage stays in the parent's name, but the child now controls the property and makes the payments.
This is exactly the same structure as a Subject-To acquisition. The only difference is the relationship between the parties.
When a parent passes away and leaves a home to their children, the mortgage does not automatically transfer. The heirs continue making payments on the existing loan while the property transfers through the estate. Banks see this constantly and do not call loans due because the payments continue.
In divorce situations, one spouse often keeps the home while the other remains on the mortgage until refinancing is possible. The spouse living in the home makes all payments. Banks accept this arrangement because their loan remains current.
Key insight: Banks are accustomed to seeing trusts, beneficiary changes, and situations where the person making payments differs from the person on the loan. This is not unusual or suspicious to lenders.
The most secure way to structure a Subject-To acquisition uses a revocable living trust with beneficial interest transferred privately. Here's how it works:
The seller transfers the property into a revocable living trust. The seller remains as a beneficiary. This is a completely normal estate-planning action that millions of families do every year.
The seller assigns their beneficial interest in the trust to the buyer (or the buyer's entity). This transfer happens privately and is not recorded on the public deed. The deed still shows the trust as the owner.
The buyer now has control of the property through their beneficial interest. They make the mortgage payments, handle maintenance, collect rent (if applicable), and have all the benefits of ownership.
The original mortgage continues to be paid on time. The bank receives their money every month. From the lender's perspective, nothing has changed except the property is now held in a trust, which is extremely common.
Subject-To deals involve the "due-on-sale" clause found in most mortgages. When structured properly using trusts, this risk is minimal.
| Role | Who | Responsibility |
|---|---|---|
| On Paper (Mortgage) | Seller | Name remains on the loan documents |
| Making Payments | Buyer | Pays mortgage, taxes, insurance monthly |
| Property Control | Buyer | Manages, repairs, rents, or occupies the property |
| Beneficial Interest | Buyer (majority) | Holds 90-100% of trust benefits |
| Trustee | Neutral Third Party | Holds legal title, follows trust instructions |
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