Subject-To & Creative Financing for Real Estate

A subject-to deal means you buy the property "subject to" the existing mortgage. The seller transfers title to you. The mortgage stays in the seller name. You make the payments. You own the house.

Why would a seller agree to this? Because their situation demands it. A seller who is three months behind on payments faces foreclosure. They cannot sell traditionally because the mortgage balance is close to or above the market value. They have no equity for a wholesaler to work with. But they can transfer the deed to you, you bring the payments current, and the foreclosure stops. The seller walks away with their credit intact.

The due-on-sale clause is the risk everyone asks about. Most mortgages include language that allows the lender to call the full loan balance due if the property transfers ownership. In practice, lenders rarely enforce this clause when the payments are being made on time. They care about getting paid, not about who owns the house. That said, the risk exists, and you need to understand it before doing your first deal.

Subject-to works best on properties with low-interest-rate mortgages. If the seller locked a 3.5% rate in 2020 and current rates are 7%, taking over that loan is worth more than any cash discount. You are inheriting cheap debt that you cannot get anywhere else right now.

FlipMantis underwriting tool runs subject-to scenarios alongside traditional acquisition analysis. Enter the existing loan balance, interest rate, and remaining term, and the platform shows you cash flow, equity position, and return metrics specific to the subject-to structure.

Subject-to deals do not come from the same lists as wholesale deals. The lead profile is different.

Your ideal subject-to seller has a low-interest-rate mortgage, is behind on payments or about to be, and has little to no equity. Pre-foreclosure lists are the primary source. These are homeowners who have received a Notice of Default or Lis Pendens. They are running out of time and options.

Divorce leads work well for subject-to. Both parties want out of the property fast, and neither wants to deal with listing, showing, and closing on a retail timeline. A subject-to deal lets them transfer the house and move on.

Job relocation creates subject-to opportunities. The seller bought recently, has minimal equity, and needs to move in 30 days. They cannot wait for a traditional sale. Taking over their mortgage solves their problem immediately.

The key conversation happens when you ask about the mortgage. "How much do you owe?" and "What is your interest rate?" When the answers reveal a low rate and a balance close to market value, shift the conversation from cash offer to creative structure. "What if I could take over your payments, bring you current, and you walk away without owing anything?"

FlipMantis List Builder lets you filter for pre-foreclosure filings, recent purchase date with high loan-to-value, and out-of-state owners. Stack these filters to build lists of sellers who fit the subject-to profile. The lead scoring system flags high-probability creative finance candidates based on the property and owner data.

Subject-to is one creative structure. There are several more, and the best investors know when to use each one.

A wrap mortgage, or wraparound, is when you buy subject-to the existing loan and then sell the property with seller financing at a higher rate. You keep the existing 3.5% mortgage in place, sell to a retail buyer at 7% with owner financing, and pocket the rate spread every month. The buyer makes one payment to you. You make one payment on the underlying mortgage. The difference is your profit.

A lease-option gives a tenant-buyer the right to purchase the property at a predetermined price within a set timeframe, typically one to three years. They pay an upfront option fee, which is non-refundable, and above-market rent with a portion credited toward the purchase. You control the property, collect premium rent, and either sell at the option price or keep the option fee and property if they do not exercise.

Seller financing is when the property owner acts as the bank. Instead of getting a lump sum at closing, the seller receives monthly payments from you at an agreed interest rate. This works when the seller owns the property free and clear and wants ongoing income rather than a big check.

Each structure has legal requirements that vary by state. Some states require a mortgage loan originator license for certain seller financing arrangements. Some have restrictions on lease-option terms. Get a real estate attorney in your state before closing your first creative deal.

FlipMantis pipeline supports creative financing deal types. Track the underlying loan, the wrap terms, the option fee, and the payment schedules all within the deal record.

Creative financing deals carry unique risks. Managing those risks is what separates professionals from people who get sued.

Insurance is first. When you take title subject-to, you need a new insurance policy in your name or your entity name. The existing policy is in the seller name and will not cover you. Get landlord insurance if you are renting the property. Get a builder risk policy if you are rehabbing. Let the insurance lapse and a fire or flood can wipe out the entire deal.

Use a loan servicing company for wrap mortgages and seller financing. Do not collect payments directly from buyers and then make payments on the underlying loan. A licensed loan servicer handles collection, escrow, and payment distribution. It protects you legally and prevents the seller from claiming you are not making payments.

Entity structure matters. Hold creative finance properties in an LLC. This separates the asset from your personal liability. If a tenant sues or the property has an issue, the LLC is the target, not your personal assets. Consult an attorney about whether a land trust adds additional protection in your state.

Document everything. The purchase agreement, the memorandum of agreement recorded with the county, the power of attorney for insurance and loan modification purposes, and the authorization to release information from the lender. Missing paperwork creates legal exposure that can unravel the deal years later.

Keep reserves. Subject-to deals require you to make payments on a mortgage that is not in your name. If the property sits vacant for two months or a tenant stops paying, you still owe that mortgage payment. Keep at least three months of payments in reserve for every subject-to property you hold.