Craven Academy: Real Estate

Another way to buy a property without having to obtain a mortgage is to purchase it "subject to existing financing." This can be a risky way to do it because you are essentially leaving the mortgage in the seller's name. The bank is not notified about the sale so that the "due on sale" clause is not triggered. Unless a loan is designated as an assumable loan, it is supposed to be paid off when the title is transferred. The seller is taking a risk because the loan remains in their name; if the buyer doesn't pay and a foreclosure takes place it appears, on the seller's credit report. Why would a seller agree to this? The usual answer is that the seller is desperate. If foreclosure is looming and there is no buyer in sight then a "subject to" deal may be a viable option.

From a buyer's perspective, in order for this kind of deal to make sense there must be enough equity in the property to make it profitable.

The seller will usually expect to get some cash but not always. After the title is transferred the buyer becomes the legal owner of the property and can do whatever they wish with it. The usual idea is to flip it and sell it for profit. When the sale is made the mortgage that is still in the seller's name is paid off.