Subject-To Deals: Take Over Mortgages with Zero Banks

Subject-to means you buy a property and the existing mortgage stays in place. The deed transfers to you. The loan stays in the seller's name. You make the payments.

This is not assuming the loan. Assumption requires lender approval and a credit check. Subject-to requires neither. The seller signs the deed over to you, and you take control of the property while the original financing remains untouched.

Why would a seller agree to this? Because they are motivated. They are behind on payments. They got a job transfer. They inherited a house they do not want. They are going through a divorce. The common thread: they need the problem gone more than they need cash at closing.

Here is a real deal structure. A property is worth $200,000. The seller owes $150,000 on their mortgage at 3.2% interest. They are two months behind. You offer to bring the loan current (about $3,400), pay the seller $5,000 for their equity at closing, and take over the payments. Your total out-of-pocket: roughly $8,400 plus closing costs. You now control a $200K asset with a below-market interest rate.

The seller wins because the foreclosure stops, their credit is protected, and they walk away with cash. You win because you acquired a property with minimal capital and inherited a rate you could never get from a bank today.

Subject-to works best when the existing loan has a low interest rate, the seller has little equity, and the seller is more motivated by relief than by a big check. If the seller has $80K in equity, they are probably better served by a traditional sale. Sub-to shines in low-equity, high-motivation situations.

The key legal document is the warranty deed (or grant deed, depending on your state). You record this deed, and ownership transfers. The mortgage stays. Two separate things: ownership and debt obligation. You own the property. The seller still technically owes the debt. But you are making the payments.

Every conventional mortgage has a due-on-sale clause. It says the lender can call the entire loan due if the property transfers ownership. This is the number one objection people raise about subject-to deals. So let us address it head-on.

Can the lender call the loan due? Yes. Legally, they have that right. Do they? Almost never. Here is why: lenders want performing loans. If someone is making on-time payments at 3.2%, the lender is earning interest on a healthy asset. Calling that loan due means they lose that income stream and have to redeploy that capital, probably at higher origination costs.

Lenders typically enforce due-on-sale when payments stop. If you take over a loan subject-to and miss three payments, the lender investigates, discovers the ownership change, and may accelerate. But if you are paying on time every month, you are the lender's favorite borrower, even if they do not know your name.

That said, treat this risk seriously. Do not pretend it does not exist. Here are the practical steps to manage it.

First, set up an escrow or loan servicing company to make payments directly. This keeps the payment source consistent and avoids red flags. Second, keep insurance current. This is actually the bigger risk. If you change the insurance policy and the lender's loss payee clause is disrupted, that triggers attention. Work with an insurance agent who understands investor deals. Get a new policy in your name (or your LLC) with the lender listed as loss payee, and keep the seller's policy active during the transition.

Third, have a backup plan. If the loan does get called, you need the ability to refinance within 30-90 days. That means knowing your exit: refinance into a DSCR loan, sell the property, or pay off with private money while you arrange permanent financing.

Fourth, communicate with your seller. They need to understand that the loan stays in their name. Some sellers panic when they get statements. Set up auto-pay and send them monthly confirmation that the payment was made.

The due-on-sale clause is a real contractual provision. It is not a myth. But in practice, with on-time payments and proper insurance handling, enforcement is extremely rare. Thousands of investors hold subject-to portfolios for years without a single call.

Before you make a sub-to offer, you need to know your numbers cold. FlipMantis makes this straightforward.

Start in the Deal Pipeline. Create a new deal and select "Subject-To" as your acquisition strategy. This triggers the sub-to-specific fields in the underwriting calculator.

First, pull the property data. Enter the address, and FlipMantis fetches the ATTOM data: estimated value, tax history, lot size, year built, and comparable sales. This gives you your ARV baseline without guessing.

Now enter the existing loan details. You need the remaining balance, interest rate, monthly payment (PITI), and approximate remaining term. In our example: $150,000 balance, 3.2% rate, $1,100 monthly PITI, 26 years remaining.

Next, enter your acquisition costs. Back payments to bring the loan current: $3,400. Cash to seller: $5,000. Closing costs (title, recording, attorney): $2,500. Total cash to close: $10,900.

The calculator now shows your equity position. Property value $200,000 minus loan balance $150,000 minus your costs $10,900 equals $39,100 in day-one equity. That is a 19.5% equity position for under $11K out of pocket.

If you plan to hold as a rental, switch to the cash flow analysis. Enter your expected rent ($1,600/month), vacancy rate (8%), property management (10%), maintenance reserves (5%), and the calculator shows your net cash flow. With a $1,100 PITI, your gross spread is $500/month. After expenses, you are looking at roughly $200-250/month positive cash flow, plus principal paydown and appreciation.

The CRM side tracks your sub-to pipeline separately. Tag the seller as a sub-to prospect. Log your conversations and offers. When you go under contract, the deal moves through your sub-to-specific stages: initial contact, property inspection, title search, contract signing, deed recording, and post-closing setup.

FlipMantis also flags risk factors. If the loan balance is above 85% of the property value, you get a thin-equity warning. If the interest rate is above current market rates, the system notes that sub-to may not provide a rate advantage. These guardrails keep you from chasing deals that do not pencil.

Run comps before you commit. The comps engine pulls recent sales within your radius and lets you adjust for condition, square footage, and lot size. If your ARV assumption is off by even 5%, that changes your equity position significantly.

Not every motivated seller is a sub-to candidate. You are looking for a specific profile: low equity, behind on payments or about to be, and more motivated by relief than by a payout.

The best lists for sub-to sellers: pre-foreclosure (they are already behind), divorce filings (one party wants out fast), job relocation (timeline pressure), and inherited properties with existing mortgages (heirs do not want the payment).

Build these lists in your list builder. Pull pre-foreclosure from county records. Cross-reference with skip tracing to get phone numbers. Then start calling.

The script is different from a cash offer call. You are not leading with "I will buy your house for cash." You are leading with "I can take over your payments and stop the foreclosure." That is a fundamentally different conversation. The seller hears relief, not discount.

Here is the conversation flow. First, confirm their situation. "Are you currently behind on payments?" Second, establish the mortgage details. "What do you owe? What is your monthly payment? What is your interest rate?" Third, present the solution. "What if I could take over your payments, bring the loan current, and give you some cash to move? You walk away clean, no foreclosure on your record."

Most sellers ask two questions: "Is this legal?" (Yes, deed transfers happen every day) and "What about my credit?" (Your credit is protected as long as payments are made, and you get a written agreement guaranteeing that).

Once the seller agrees, the closing process has five steps. First, get the property under contract with a subject-to purchase agreement. Your real estate attorney should draft this. Second, order a title search to confirm the mortgage balance, any liens, and clean title. Third, have the seller sign a warranty deed transferring ownership. Fourth, set up insurance in your name with the lender as loss payee. Fifth, record the deed at the county recorder's office.

After closing, set up auto-pay on the mortgage through a servicing company. Send the seller monthly payment confirmations. Keep detailed records. This is a relationship you are maintaining for years, potentially decades, until that loan is paid off or you refinance out.

You closed a sub-to deal. Now what? You have four primary exit strategies, and the right one depends on your goals and the deal specifics.

Exit one: hold as a rental. This is the most common play. You own a property with below-market financing. Rent it out, collect cash flow, let the tenant pay down the mortgage. The 3.2% rate you inherited is likely 2-3 points below what you could get on a new loan. That rate advantage is real money every month.

Exit two: wraparound mortgage (also called a "wrap"). You sell the property to an end buyer using seller financing. The original loan stays in place (you keep making those payments), and the buyer pays you at a higher rate. Example: you owe $150K at 3.2%. You sell for $195K with seller financing at 7%. The buyer pays you $1,450/month. You pay $1,100 to the original lender. You pocket $350/month in spread, plus you collected a $10K-20K down payment at closing. The wrap is one of the most profitable structures in creative finance.

Exit three: refinance and cash out. Once you have owned the property for 6-12 months and it has seasoned, refinance into a DSCR loan in your LLC's name. Pull out your equity, pay off the original mortgage, and the seller's name is completely clear. This is the cleanest long-term exit for the seller relationship.

Exit four: fix and sell. If the property needs work, rehab it, increase the value, and sell retail. Use the sub-to as a short-term acquisition strategy to avoid hard money costs. Your holding costs are just the existing mortgage payment instead of 12-14% hard money rates.

For long-term management, track every sub-to deal in your pipeline. Monitor the loan balance paydown. Set reminders for balloon dates if you did a wrap. Keep insurance current. Send seller payment confirmations monthly.

The biggest mistake new sub-to investors make is over-leveraging. Taking on ten sub-to deals sounds great until you have ten mortgage payments due on the first of the month. Start with one or two. Get your systems dialed. Understand the cash flow timing. Then scale.

Sub-to is one of the most powerful acquisition strategies available because it lets you control real estate with minimal capital while inheriting financing terms that no bank will give you today. Master the mechanics, manage the risks, and you have a tool that works in any market cycle.