Exit Structures
Subject-To Transactions
In a subject-to deal, your loan stays in your name after sale. Understand how these transactions work, the due-on-sale clause risk, and what protections exist.
When someone offers to "take over your payments," they're usually proposing a subject-to transaction. This page explains what that means, how it works, and what you need to understand about the risks before considering this type of offer.
Your Name Stays on the Loan
When someone offers to buy your property "subject-to" the existing mortgage, they're proposing a specific kind of transaction: they take title to the property, they make the monthly payments, but the loan stays in your name.
This isn't a technicality. The deed—which transfers ownership—and the promissory note—your personal promise to repay the debt—are separate legal documents. You can transfer one without the other. In subject-to, the buyer gets the deed. You keep the note.
The lender is not part of this transaction. They don't approve it, don't agree to it, and often don't know about it. The mortgage continues with you as the borrower. Payments may come from someone else, but the debt is still yours.
Understanding this split between payments and debt matters because of what happens when things go wrong.
What Happens If They Stop Paying
Because the loan remains in your name, any late payment appears on your credit report. Any default appears on your credit report. If the property goes to foreclosure, that foreclosure appears on your credit report—and stays there for seven years.
It doesn't matter who actually missed the payment. Lenders report to credit bureaus based on who signed the promissory note. That's you. The buyer's name doesn't appear anywhere in the mortgage paperwork. Neither does their payment history.
The impact can be serious. A single late mortgage payment can drop your credit score by 60 to 110 points, with higher-score borrowers often experiencing larger drops. A foreclosure affects your ability to get new credit, qualify for housing, and sometimes even pass job background checks.
You handed over control of the property. You kept the credit exposure.
The Due-on-Sale Clause
Most mortgages contain a due-on-sale clause—sometimes called an acceleration clause. This gives the lender the right to demand full repayment of the loan if the property is transferred.
This isn't theoretical. The Garn-St. Germain Act of 1982 made it federal law that lenders can enforce these clauses.
What this means: if your lender finds out the property has been transferred, they can legally demand the entire remaining balance right away. If you can't pay, they can foreclose.
Whether lenders actually enforce due-on-sale clauses varies. Many don't actively look for ownership changes. But the legal right exists, and it can be used at any time during the life of the loan.
But how would a lender find out about the transfer in the first place?
How Lenders Find Out
Property transfers don't stay hidden forever. Several routine events can alert lenders to ownership changes.
Insurance is a common trigger. When the new owner changes the insurance policy or files a claim, the lender—often listed on the policy—may be notified of the ownership change. Property tax records are public and sometimes checked. Title searches by other parties can reveal the transfer.
None of this is guaranteed to happen, and some transfers go undetected for years. But betting on the lender never finding out means betting on every potential trigger staying quiet for the remaining life of the loan—which could be decades.
Liability Without Control
In a subject-to transaction, your agreement with the buyer is completely separate from your mortgage contract with the lender. The lender's claim is against you. What you arranged with the buyer doesn't change that.
This creates a basic problem: you remain liable for the loan, but you have no direct power over whether the buyer keeps paying. The buyer has no obligation under your mortgage. Their only obligation, if any, is under whatever separate agreement you signed with them.
Checking whether payments are being made takes effort on your part. Third-party loan servicing companies exist that can collect payments from the buyer and forward them to the lender, giving you visibility. But this costs money and doesn't change the underlying liability. If the buyer stops paying, you're still the one the lender comes after.
This structure differs from another option you may have heard about: loan assumption.
Subject-To vs. Loan Assumption
Subject-to is sometimes confused with loan assumption. They sound similar—someone else takes over mortgage payments—but they work differently in ways that matter.
Loan assumption requires lender approval. The buyer applies to the lender, provides documents, and gets qualified much like they would for a new loan. FHA, VA, and USDA loans are explicitly assumable under their program rules. Conventional loans typically are not.
The key difference: with assumption, the lender can release the original borrower through a process called novation. If the lender approves the assumption and releases you, you're no longer liable. The debt becomes the new borrower's.
Subject-to doesn't involve the lender. There's no approval process, no buyer qualification, no novation—and no path to liability release. The loan remains yours until it's paid off, refinanced by someone else, or foreclosed.
For a complete explanation of how loan assumption works, see Loan Assumption.
Financial Exposure Beyond Credit
Credit damage isn't the only financial risk. In roughly 40 states, if the property goes to foreclosure and sells for less than the loan balance, the lender can pursue a deficiency judgment against the original borrower—that's you.
This means you could owe money. If the loan balance was $280,000 and the foreclosure sale brought $240,000, you could be liable for the $40,000 difference, plus foreclosure costs and fees.
Deficiency judgments are collectible debts. Lenders can pursue them through wage garnishment, bank account seizures, and other collection methods. This exposure can surface years after you thought you'd sold the property.
The rules vary by state, and some states don't allow deficiency judgments for certain loans. But in most of the country, the risk exists.
These risks are compounded by one more factor: you may not find out something is wrong until serious damage has already occurred.
Finding Out Too Late
If the buyer stops paying, how would you know?
Lenders are not required to tell you about missed payments. They report to credit bureaus, but there's no rule saying they have to send you a separate notice when someone else—who isn't party to the mortgage—fails to pay.
Many sellers find out only when they apply for new credit. The denial letter mentions delinquencies. The mortgage they thought was being handled is now 60, 90, or more days past due.
By then, the credit damage has already happened. Late payment records have already been filed. If the situation moves toward foreclosure, the timeline to step in gets short quickly.
Third-party servicing companies can provide payment monitoring, but this takes setup and ongoing cost. Without it, you're depending on the buyer's honesty or on finding out through other channels.
What Subject-To Actually Means
The phrase "taking over payments" makes subject-to sound like a transfer. Someone else assumes the burden, and you're free. This framing is misleading.
Subject-to is not a transfer of liability. It's a transfer of control.
The buyer gets the property. They decide whether to maintain it, rent it, sell it, or let it fall apart. They decide whether to make payments on time, make them late, or stop making them entirely. They hold the asset.
You keep the liability. Your name remains on the promissory note. Your credit report reflects payment behavior. Your financial record shows a foreclosure if it comes to that. You can face a deficiency judgment for tens of thousands of dollars years after you thought the property was someone else's problem.
This arrangement can last for the remaining life of the loan—potentially 20 or 30 years. During that entire period, you're trusting someone with your credit, your liability, and your financial reputation.
None of this means subject-to is never appropriate. Some sellers in some situations decide the terms work for them. But that decision requires understanding what you're actually agreeing to: you're not getting out of the loan. You're trusting someone else to handle it for you, with no way to force them to follow through and limited ability to know if they've stopped.
The question isn't whether subject-to is "good" or "bad." The question is whether you understand what you're keeping when you sign.
Related Pages
Situations where this applies:
When You're Behind on Payments — subject-to is often proposed to distressed sellers
When Your Loan Is Worth More Than Your Equity — low-rate loans attract subject-to offers
When You Just Want Out — quick closing appeals to motivated sellers
Related structures:
Loan Assumption — how it differs from subject-to
Cash and Wholesale Offers — alternative fast exit
Go deeper:
Disclaimer: This information is educational and does not constitute legal advice. Due-on-sale enforcement, deficiency judgment rules, and other aspects of subject-to transactions vary by state and by loan type. Consult with a licensed attorney in your state before entering into any real estate transaction.
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