The seller has a mortgage at say 3.5% from 2020. You cannot get a new loan below 7% today. In a subject-to deal, the seller conveys the deed to you and you take over the existing 3.5% payments — without formally assuming the loan. The mortgage stays in the seller's name. You own the property. The seller no longer makes payments but remains responsible to the lender if you default.
Sellers in distress — facing foreclosure, divorce, or relocation — sometimes value a fast exit more than maximizing price. A subject-to offer solves their problem: you take over the payments, the foreclosure stops, and they deed you the property. In exchange, they accept the risk that you might default. Full disclosure and ideally legal counsel for the seller are essential in any subject-to transaction.
Every mortgage has a due-on-sale clause: if the property is sold without the lender's approval, the lender can call the entire loan due immediately. In practice, lenders rarely exercise this clause as long as payments are current — but the risk is real and must be disclosed to the seller. If the lender calls the loan and you cannot refinance quickly, the seller faces the same foreclosure they were trying to avoid.
Subject-to works best when the existing interest rate is significantly below current market, the seller has a genuine distressed situation, you have a clear exit plan (flip, refinance, or long-term hold), and both parties have competent legal representation. It is not a beginner strategy — the legal and ethical complexity requires experience and proper structure.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.