In recent years, the real estate market has seen a rise in creative financing. While this can mean many things, one of the most common methods is the subject-to transaction. In this scenario, a Buyer purchases property “subject-to” the existing mortgage.
This is not the same as assuming the current mortgage, and the difference can have serious, often overlooked, consequences for Sellers.
What is the Due on Sale Clause?
Most traditional mortgages contain a due on sale clause that reads substantially as follows:
“If all or any part of the Property or any interest in the Property is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person)… Lender may require immediate payment in full of all sums secured by this Security Instrument.”
In plain terms, this means that if the property is sold, deeded away, or transferred in any way, the lender may demand immediate payment in full of the mortgage balance.
- Some Buyers claim Sellers can deed property into a land trust and then sell their interest in the trust instead of the property.
- However, changing the beneficial interest in a land trust or LLC can still trigger the due on sale clause.
Subject-To vs. Assumption of Mortgage
What is a Mortgage Assumption?
When a Buyer assumes a mortgage:
- They apply with the lender to replace the Seller as the responsible party.
- The Seller is typically removed from liability under the mortgage and promissory note.
- This option can be advantageous if the existing mortgage rate is lower than current rates.
What is a Subject-To Transaction?
In a subject-to transaction:
- The Buyer does not assume the debt, it remains in the Seller’s name.
- The Buyer makes payments on the Seller’s debt but has no personal liability.
- If everything goes smoothly (payments are made, lender doesn’t enforce the due on sale clause, and refinancing occurs), the Seller is eventually relieved of responsibility.
- However, this leaves significant risk if things go wrong.
Why is Subject-To Risky for Sellers?
- No Personal Liability for the Buyer
If the property becomes unprofitable, the Buyer can walk away, leaving the Seller responsible for foreclosure risk, even years later.
- Missed Payments Damage Seller’s Credit
Each missed payment impacts the Seller’s credit, making it harder to:
- Qualify for credit cards
- Finance vehicles
- Obtain other loans
- Difficulty Purchasing a New Property
Since the Seller remains liable for the old mortgage, it increases their debt-to-income ratio, making it harder to qualify for new mortgages, even though they no longer own the property.
- Foreclosure Risk
If foreclosure occurs, the Seller can still be named as a party in the case and receive a foreclosure judgment, despite no longer owning the property.
- Loss of Surplus Funds in Florida
Under Florida law, foreclosure sales that exceed the mortgage balance create surplus funds.
- Example: If $200,000 is owed and the home sells for $400,000, there’s a $200,000 surplus.
- In a subject-to, the Seller is liable for the debt but no longer entitled to any surplus proceeds.
Should Sellers Consider Subject-To Transactions?
Subject-to purchases can be attractive to Buyers since they allow acquisition with less upfront money. But for Sellers, these transactions carry long-term risks, including credit damage, foreclosure judgments, and financial liability without benefit.
Bottom line: If you’re offered a subject-to deal, consult with an experienced real estate attorney before signing anything.
👉 Contact our real estate attorneys to review your situation and protect your financial future.
The attorneys at The Orlando Law Group help with all types of legal issues for homeowners and property owners in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on August 5, 2025 by The Orlando Law Group
