In the past couple of years, ‘Subject To‘ deals have become a hot topic in real estate investing circles. This creative financing method allows investors to acquire properties by taking over existing mortgages. It’s particularly appealing when sellers, who paid over list price and are now barely breaking even, have no equity to cover Realtor commissions or closing costs. For investors, properties with mortgages under 3% are especially enticing.

However, many new or inexperienced investors have been jumping into these deals without fully grasping the complexities, leading to serious issues—especially when they assign these deals to others. When things go wrong, it can get messy, fast. To explore this topic further, we asked a question that sparked a big conversation across social media:

What happens when the end buyer stops making payments on behalf of the seller in a Subject To Transaction?

Vena Jones-Cox posted this on her Facebook Page and We posed this question on the MAREI Facebook Group. The flood of responses offers valuable insights for anyone considering a ‘Subject To’ deal, especially those thinking of assigning them. The conversation on both posts is still ongoing.

Insights from Vena Jones-Cox’s Community on Subject To

Many investors in Vena’s community use trusts in their ‘Subject To’ deals. Kathie Russell explained that in these cases, the seller remains the beneficiary of the trust until the mortgage is fully paid off. If the buyer defaults, the trustee can return the property to the seller—though in most cases, the seller likely doesn’t want the property back. Still, this structure offers a degree of protection.

But Vena Jones-Cox warns: the wholesaler, end buyer, and anyone involved in the transaction could still face lawsuits, even if there are clauses in the contract releasing them from liability. As Leaon Blocksom bluntly put it, “Until it makes the newspapers and someone goes to jail,” this remains a very risky area of investing.

John Burley raised another important point: what happens to the new family living in the home? If the buyer defaults and no one steps in to correct the situation, the bank could foreclose, leaving the occupants without a home. This could lead to more regulation, and as Vena suggests, we might soon see legislation banning ‘Subject To’ deals altogether.

Exploring Solutions

When faced with the question of what to do if an end buyer stops making payments, Brad Pettis asked if the seller could “foreclose” and find a new buyer. However, as Vena explained, only the bank has the right to foreclose—not the seller, leaving them with little recourse.

Stacie Meeker shared a personal story of how she had to step in and make things right after an investor she worked with defaulted on a ‘Subject To’ deal. This highlights the importance of having contingency plans and reliable partners.

Vena also offered her solution: structuring the deal so that the property is deeded to a trust, with the trustee required to return the property to the seller if the payments are 30 days late and the beneficiary fails to rectify it within 10 days. Another option is to close the deal, wrap it, and have the ability to foreclose if the payments stop, ensuring the seller is protected.

What MAREI Investors Are Saying on the Same Sub To Question

On our MAREI Facebook page, Jim Viens pointed out that the original borrower remains on the hook for the mortgage. If the end buyer defaults, it’s the seller’s credit that will take the hit, and they’ll be the ones pursued in a foreclosure.

Kim Tucker raised the possibility of the original seller suing the buyer and end buyer for not performing. Meanwhile, Caleb Christopher suggested that the assignor might not bear liability unless they knew in advance that the assignee was likely to default. But as attorney John Hyre reminds us, deceptive and unfair business practices laws vary by state, and an angry attorney general could still argue that the investor acted unfairly, regardless of what the paperwork says.

Hyre emphasized that no contract can fully protect an investor from legal action. Even if the contract has been signed and disclosures were made, an unfair deal can still lead to trouble—especially if a jury sides with the seller. He’s seen it too many times to believe that ‘Subject To’ assignments will end well.

The Bigger Picture

Beyond the obvious risks, there are even more factors that investors need to consider when entering into a ‘Subject To’ deal. What happens if the seller files for bankruptcy? Will the bank continue to accept payments, or will they foreclose? Additionally, if the bank discovers the ownership change, they could trigger the due-on-sale clause, calling the loan due immediately. These are real dangers that can’t be overlooked.

Keep Learning With Real Experienced Investors

‘Subject To’ deals offer incredible opportunities, but they come with serious risks, especially when assigning the transaction to a third party. While some investors have found ways to structure deals that provide more protection, others are simply hoping everything goes smoothly. For those considering this path, it’s critical to understand not only the potential upside but also the very real legal and financial dangers involved.

If you’re thinking about getting involved in a ‘Subject To’ deal, take the time to learn from others’ experiences, consult with legal professionals, and ensure you have safeguards in place. A poorly handled deal can have far-reaching consequences for everyone involved, from the seller to the end buyer—and even you.

The conversation is ongoing on Facebook

Want to dig in and learn more? We have several options for you here at MAREI.

• We hosted a Basic Subject To Class with Vena a while back and members have the opportunity to take the class as a replay. (click here)
• This Saturday Vena & Anita Johnson are hosting an Advanced Strategies Class that will dig into other ways to do the deal (click here)
• And on Tuesday the 15th, Vena’s Express Success Class is Titled “Why we don’t Assign Subject To” (click here to learn more)