Owner Financing while already having a mortgage

1 Reply


I got an offer on a two-family that I own. The offer was made so that I would become the mortgagor to them, while already being a mortgagee with my lender. Seems weird and wondering if it's legal.

I had an attorney tell me there was too much liability on my end, but wanted to run it by the BP family as well. If someone has an idea of if this would work or not, I am happy to share the P&S.


Legal?  Yes.  Nobody's going to come put you in jail for doing this.

But it is almost certainly a violation of the due on sale clause in the existing mortgage.  This sort of deal is called a "subject to" deal because the buyer is taking the property subject to the existing loan.  They buyer could start directly paying the existing mortgage.  Or, you could do a "wrap" where you create a new mortgage and they pay that while you continue to pay the existing one.  

This is not too unusual, and the standard contracts usually have verbiage related to doing this.  A title company can still issue title insurance and do the transaction.  The title policy will have an exception for the existing mortgage.

You are still on the hook for the existing mortgage.  In a wrap, you could foreclose if the buyer stops paying.  In a subject to, you have very little leverage.  If the existing mortgage isn't getting paid, the lender can foreclose.  The existing mortgage will continue to show up on your credit report.  

The biggest risk is that the existing lender calls the mortgage due.  Your buyer would need to quickly refi or sell the property.  Often people who want a deal like this have credit issues.

Search for "subject to" and you'll find hundreds of threads on this topic.

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