BEWARE: “Subject to an Existing Mortgage” (Why This Can Blow Up Your Deal)

A friend/client recently asked if I could help them buy homes “subject to the existing mortgage.” Quick note: this is not about assumable loans. We’re talking about non-assumable loans where the buyer takes title while the original mortgage stays in the seller’s name. After doing a deep dive, here’s the straight talk: this strategy can be fraudulent, puts both parties at serious risk, and can spiral into IRS and lender trouble fast.

What “Subject To” Really Means (and Why It’s a Problem)

In a traditional sale, the buyer gets a new loan or assumes an assumable one.
In a “subject to” deal, the buyer takes ownership/title, but the existing loan remains in the seller’s name.
Almost every mortgage includes a Due-on-Sale clause (a “due on transfer” provision). If ownership changes without the lender’s consent, the lender can demand immediate payoff or even foreclose.
If you transfer title and don’t notify the lender, you’re effectively misrepresenting material facts to a financial institution. That’s not a gray area—it’s a huge red flag.

Who Gets Targeted—and Why It Feels “Attractive”

Subject-to pitchmen often target:

Owners in distress (job loss, death in the family, divorce).
Owners who bought recently and would lose money after commissions/closing costs.
Buyers who can’t qualify for a loan, don’t have enough down payment, or want to “keep a low rate.”

If someone can’t qualify or can’t afford the current rates, that’s not a green light to bypass safeguards—it’s a sign to hit pause. We learned hard lessons in 2008 about ignoring risk.

“But Title Didn’t Stop It…” Doesn’t Make It Safe

Here’s what my research and calls turned up:

Some title companies say their role is to show there’s a lien—they don’t police whether the lender’s notified.
A reputable escrow officer I spoke with (Escrow Options, Colleen Mackey) was unequivocal: they won’t touch subject-to on non-assumable loans because failing to notify a lender can jeopardize licenses and careers. That’s the professional, compliant stance.

Bottom line: just because someone looks the other way doesn’t make it compliant. And more lenders are catching on (for example, by scrutinizing insurance changes that reveal new owners/trusts).

Common Workarounds You’ll Hear (and Why They’re Risky)

“Put it in a trust/LLC so the lender doesn’t notice.” Lenders are increasingly requesting trustee details. Unrecorded side docs and shell structures can compound legal exposure.
“Change the mailing address locally so it looks normal.” If you’re hiding changes to avoid detection, you’re admitting there’s something to hide.
“We’ll add the seller’s name to the trust on paper, but not really.” That’s deception. Period.

Real-World Consequences You Might Not See Coming

For sellers:

Your credit remains tied to the mortgage. If the new “owner” stops paying, your credit tanks and you face collections/foreclosure risk.
You might be unable to qualify for a new loan because that old debt still reports under your name.

For buyers:

The lender can call the loan due immediately. If you can’t pay off the balance or refinance on command, you could lose the property and the money you put in.

For everyone:

Insurance, tax deductions (e.g., who can claim mortgage interest if the note isn’t in your name?), transfer disclosures, and licensing/escrow rules get murky fast.
If a regulator or lender reviews the file, you can be dealing with penalties, legal fees, and forced unwind scenarios.

A Personal Warning About “Too Good to Be True”

I’ve dealt with a separate “creative” structure in the past (not subject-to) that looked perfectly vetted—actuaries, attorneys, glowing references. Years later, we got hit with a massive IRS bill, penalties, liens, even passport issues. We paid it. Lesson: if a structure’s advantage depends on staying unnoticed or exploiting a gap, the bill can arrive years later—and it won’t be gentle.

If You’re Tempted as a Seller

Don’t transfer title without lender approval on a non-assumable loan.
Explore legit alternatives: price correctly, negotiate credits, consider a formal assumption only if the loan is assumable and the lender approves, or work with reputable professionals on lawful exit options.

If You’re Tempted as a Buyer

If you can’t qualify today, create a plan to qualify the right way (credit repair, down-payment savings, income documentation).
Consider house hacking, co-borrowing with proper underwriting, or looking at more affordable markets—all aboveboard.

The Bottom Line

“Subject to an existing mortgage” on non-assumable loans is not a clever shortcut—it’s a legal and financial landmine. Lenders can accelerate the loan, escrow pros won’t touch it, and you could entangle yourself with consequences that dwarf any short-term “win.” If it hinges on secrecy or technicalities, step away.