SubTo and Due-on-Sale Clause
Victoria SpagnoloPro Member
Investor · NY · Member since 2024 · 23 posts · 15 votesSubTo and Due-on-Sale Clause
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesQuote from @Don Konipol:
Seems like the misunderstandings of the so called “subject to” transaction are never ending.
Many investors seem to think that engaging in a subject to transaction in which the lender is not informed of the transfer of deed is wrong, well, because it SOUNDS like it’s wrong! It must be CONCEALMENT! It must be ILLEGAL! It must be IMMORAL!
BS - it’s none of those things. In 1982 lenders tried to have Congress pass legislation that would make it a criminal offense to knowingly violate the “due on sale clause”. Yet despite the great lobbying power of the various lender’s lobby’s, Congress wouldn’t even offer it a a bill. You know why? Because legal scholars determined that any law interfering with an individuals right to sell his property is in violation of the Constitution.
I’ve been lending secured by real estate for over 45 years. There is absolutely nothing illegal, immoral or otherwise wrong with transacting a property utilizing a subject to approach, EVEN if the transaction is not recorded, even if the transaction is “concealed”.
The problems, legality, morality issues occur when one party to the transaction is not made aware of the ramifications of entering into this type of transaction. So when an “operator” does a sub to deal with a homeowner who doesn’t understand their continuing liability for the note balance and their probable difficulty in qualifying for another mortgage that can be classified as taking advantage of a homeowner. And when the “operator” is running an equity skimming scheme, or has no intention of “fixing” the situation if the note is called, then criminal acts may have been committed.
I’ve done probably 15 transactions sib to on the buy side, and maybe another dozen on the sell side. In every one all parties were disclosed in writing, all parties were represented by legal counsel, and no major issues occurred in any of them.
great points I just want to add that if anyone actually took the time to read a mortgage or Deed of Trust ( I know most dont read a 5 or 25 page document) they just sign it LOL. However in virtually every one of those instruments there is a section called:
EVENT OF DEFAULT !
this includes non payment of tax's insurance waste etc.. But the other one is alienation of title IE transfering title.
The remedies spelled out in this document that no one ever reads is:
A. in the Event of a Default the lender has the right to accelerate the loan and call it all due and payable. NOT the obligation to do so.
From my perspective the real heartburn here is beginners, undercapitalized, neferious investors doing these transactions without full disclosure to the owner of the property who signed on the Mortgage/Deed of trust and the accompanying Note. And when you have folks not ready for prime time come into title all sorts of bad stuff can happen and the original seller can get Fubared in a major way and have no idea the risk they are taking on.
16 Replies
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes3moI've been doing Subject To for 30 years and have had two called.
Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
There is another guy out there, that says he had 10 called last March. I think the difference is in how you approach the deal. A lot of people try to cram Subject To into a "normal" transaction, are under funded, buy off the MLS, don't really understand the difference between what lenders will do depending on the way the loan was originated and believe it's easy money.
It's the ones that say it "easy" to do that get it wrong.
It needs to be taught, not "winged" as in "figured out as you go".- Investor · NY · Member since 2024 · 23 posts · 15 votes3mo
Quote from @Ken M.:
I've been doing Subject To for 30 years and have had two called.Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
There is another guy out there, that says he had 10 called last March. I think the difference is in how you approach the deal. A lot of people try to cram Subject To into a "normal" transaction, are under funded, buy off the MLS, don't really understand the difference between what lenders will do depending on the way the loan was originated and believe it's easy money.
It's the ones that say it "easy" to do that get it wrong.
It needs to be taught, not "winged" as in "figured out as you go".Thank so much for this insight. Do you think finding out more information about the loan type and lender would be helpful? I think they might be DSCR loans. The owner has has these properties since 2018-2019 and hasn't ever missed any payments.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes3mo
Quote from @Victoria Spagnolo:
Quote from @Ken M.:
I've been doing Subject To for 30 years and have had two called.Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
There is another guy out there, that says he had 10 called last March. I think the difference is in how you approach the deal. A lot of people try to cram Subject To into a "normal" transaction, are under funded, buy off the MLS, don't really understand the difference between what lenders will do depending on the way the loan was originated and believe it's easy money.
It's the ones that say it "easy" to do that get it wrong.
It needs to be taught, not "winged" as in "figured out as you go".Thank so much for this insight. Do you think finding out more information about the loan type and lender would be helpful? I think they might be DSCR loans. The owner has has these properties since 2018-2019 and hasn't ever missed any payments.
To get started you need to know how much is owed, what the terms are, if the borrower is in good standing with the, lender, how much the payments is, does it include taxes and insurance. Things like that. Then you compare to what the property value is. They are somethings that have to be done to mitigate exposure and fall for the bad information that you want to put it in a land contract. Your goal is to provide a solution that helps the seller and doesn't put him or yourself in legal trouble. I work down a list I have to make sure I haven't missed any.
- Investor · NY · Member since 2024 · 23 posts · 15 votes2moThese are great points. Thank you!
Quote from @Ken M.:
Quote from @Victoria Spagnolo:
Quote from @Ken M.:
I've been doing Subject To for 30 years and have had two called.Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
There is another guy out there, that says he had 10 called last March. I think the difference is in how you approach the deal. A lot of people try to cram Subject To into a "normal" transaction, are under funded, buy off the MLS, don't really understand the difference between what lenders will do depending on the way the loan was originated and believe it's easy money.
It's the ones that say it "easy" to do that get it wrong.
It needs to be taught, not "winged" as in "figured out as you go".Thank so much for this insight. Do you think finding out more information about the loan type and lender would be helpful? I think they might be DSCR loans. The owner has has these properties since 2018-2019 and hasn't ever missed any payments.
To get started you need to know how much is owed, what the terms are, if the borrower is in good standing with the, lender, how much the payments is, does it include taxes and insurance. Things like that. Then you compare to what the property value is. They are somethings that have to be done to mitigate exposure and fall for the bad information that you want to put it in a land contract. Your goal is to provide a solution that helps the seller and doesn't put him or yourself in legal trouble. I work down a list I have to make sure I haven't missed any.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3mo
Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
Yes you are always at risk of the lender calling it due - there was a guru claiming to sell insurance for this product (which it does not exist from any licensed insurance company that I am aware of).
How often it happened really depends - some could say it could happen more frequently on properties at 3% interest when todays rates are above 6%, but the answer really it depends - but the percentage is very low.
Regarding down payments etc- I do not do sub2 so I am not the right person to answer that question, we are a lender and buy a good amount of loans.
7e investments53 Reviews - 2moRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
The due-on-sale clause is real, but enforcement is rare. Lenders aren't looking for reasons to call a performing loan due. They want their monthly payment. As long as the mortgage stays current, most lenders have zero incentive to invoke it.
That said, the risk isn't zero. Refinances are where it typically surfaces. Some investors run sub-tos through land trusts to add a layer of obscurity, but that's not foolproof either.
Preemptively: keep the loan current, don't broadcast the sub-to publicly, and have a backup financing path ready (DSCR loan, private money) in case the lender does act. The exit strategy matters more than most people think before they get into a deal.
On seller compensation, yes, typically you're giving them something. A motivated seller behind on payments might take $3k-$5k cash just to be relieved of the liability. A seller with $80k equity who just wants out will expect more, whether that's a lump sum at close, monthly payments, or a share of future appreciation. It's a negotiation.
One thing worth knowing for FHA and VA loans specifically: there's a legal alternative that eliminates the due-on-sale problem entirely. It's called an assumable mortgage. The lender approves the transfer directly, the original borrower gets released, and you step in clean. It takes 45-90 days and costs around $750 per side, but there's no due-on-sale exposure at all. I do these full-time in Colorado and closed 7 in a single quarter last year.
If it's a conventional loan, sub-to is your path and the risk is what it is. Just go in with eyes open.
The Assumable Guy544 Reviews- Member since 2018 · 1k+ posts · 1k+ votes2mo. . . don't broadcast the sub-to publicly,
Quote from @Ryan Thomson:
————————
If an investment strategy depends on concealment, it is wrong. - Member since 2018 · 1k+ posts · 1k+ votes2mo
Quote from @John Clark:
. . . don't broadcast the sub-to publicly,Quote from @Ryan Thomson:
————————
If an investment strategy depends on concealment, it is wrong.Thanks for the upvote, Ken, but since you first recommended concealing sub-to, I’ll pass on the upvote, as I was thinking of you when I posted. Investment strategies that use concealment are WRONG.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes2mo
Quote from @John Clark:
Quote from @John Clark:
. . . don't broadcast the sub-to publicly,Quote from @Ryan Thomson:
————————
If an investment strategy depends on concealment, it is wrong.Thanks for the upvote, Ken, but since you first recommended concealing sub-to, I’ll pass on the upvote, as I was thinking of you when I posted. Investment strategies that use concealment are WRONG.
I think you are addressing the wrong guy. Please paste what I say that makes you think I said to conceal Subject To.
@Ryan Thomson: MIght have said "don't broadcast the sub-to publicly, but not I.
That is the exact opposite of what I believe and teach my students.
- Member since 2018 · 1k+ posts · 1k+ votes2mo
One thing worth knowing for FHA and VA loans specifically: there's a legal alternative that eliminates the due-on-sale problem entirely. It's called an assumable mortgage. The lender approves the transfer. ..
————
True, but slightly misleading. The seller can still be on the hook for the assumed loan if the buyer defaults. Usually if there’s a deficiency after sale.
- 2moDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Seems like the misunderstandings of the so called “subject to” transaction are never ending.
Many investors seem to think that engaging in a subject to transaction in which the lender is not informed of the transfer of deed is wrong, well, because it SOUNDS like it’s wrong! It must be CONCEALMENT! It must be ILLEGAL! It must be IMMORAL!
BS - it’s none of those things. In 1982 lenders tried to have Congress pass legislation that would make it a criminal offense to knowingly violate the “due on sale clause”. Yet despite the great lobbying power of the various lender’s lobby’s, Congress wouldn’t even offer it a a bill. You know why? Because legal scholars determined that any law interfering with an individuals right to sell his property is in violation of the Constitution.
I’ve been lending secured by real estate for over 45 years. There is absolutely nothing illegal, immoral or otherwise wrong with transacting a property utilizing a subject to approach, EVEN if the transaction is not recorded, even if the transaction is “concealed”.
The problems, legality, morality issues occur when one party to the transaction is not made aware of the ramifications of entering into this type of transaction. So when an “operator” does a sub to deal with a homeowner who doesn’t understand their continuing liability for the note balance and their probable difficulty in qualifying for another mortgage that can be classified as taking advantage of a homeowner. And when the “operator” is running an equity skimming scheme, or has no intention of “fixing” the situation if the note is called, then criminal acts may have been committed.
I’ve done probably 15 transactions sib to on the buy side, and maybe another dozen on the sell side. In every one all parties were disclosed in writing, all parties were represented by legal counsel, and no major issues occurred in any of them.
- Investor · NY · Member since 2024 · 23 posts · 15 votes2mo
Quote from @Don Konipol:
Seems like the misunderstandings of the so called “subject to” transaction are never ending.
Many investors seem to think that engaging in a subject to transaction in which the lender is not informed of the transfer of deed is wrong, well, because it SOUNDS like it’s wrong! It must be CONCEALMENT! It must be ILLEGAL! It must be IMMORAL!
BS - it’s none of those things. In 1982 lenders tried to have Congress pass legislation that would make it a criminal offense to knowingly violate the “due on sale clause”. Yet despite the great lobbying power of the various lender’s lobby’s, Congress wouldn’t even offer it a a bill. You know why? Because legal scholars determined that any law interfering with an individuals right to sell his property is in violation of the Constitution.
I’ve been lending secured by real estate for over 45 years. There is absolutely nothing illegal, immoral or otherwise wrong with transacting a property utilizing a subject to approach, EVEN if the transaction is not recorded, even if the transaction is “concealed”.
The problems, legality, morality issues occur when one party to the transaction is not made aware of the ramifications of entering into this type of transaction. So when an “operator” does a sub to deal with a homeowner who doesn’t understand their continuing liability for the note balance and their probable difficulty in qualifying for another mortgage that can be classified as taking advantage of a homeowner. And when the “operator” is running an equity skimming scheme, or has no intention of “fixing” the situation if the note is called, then criminal acts may have been committed.
I’ve done probably 15 transactions sib to on the buy side, and maybe another dozen on the sell side. In every one all parties were disclosed in writing, all parties were represented by legal counsel, and no major issues occurred in any of them.
Thank you so much for this insight. Reading this made me feel a bit better about this strategy.
- 2moJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
Seems like the misunderstandings of the so called “subject to” transaction are never ending.
Many investors seem to think that engaging in a subject to transaction in which the lender is not informed of the transfer of deed is wrong, well, because it SOUNDS like it’s wrong! It must be CONCEALMENT! It must be ILLEGAL! It must be IMMORAL!
BS - it’s none of those things. In 1982 lenders tried to have Congress pass legislation that would make it a criminal offense to knowingly violate the “due on sale clause”. Yet despite the great lobbying power of the various lender’s lobby’s, Congress wouldn’t even offer it a a bill. You know why? Because legal scholars determined that any law interfering with an individuals right to sell his property is in violation of the Constitution.
I’ve been lending secured by real estate for over 45 years. There is absolutely nothing illegal, immoral or otherwise wrong with transacting a property utilizing a subject to approach, EVEN if the transaction is not recorded, even if the transaction is “concealed”.
The problems, legality, morality issues occur when one party to the transaction is not made aware of the ramifications of entering into this type of transaction. So when an “operator” does a sub to deal with a homeowner who doesn’t understand their continuing liability for the note balance and their probable difficulty in qualifying for another mortgage that can be classified as taking advantage of a homeowner. And when the “operator” is running an equity skimming scheme, or has no intention of “fixing” the situation if the note is called, then criminal acts may have been committed.
I’ve done probably 15 transactions sib to on the buy side, and maybe another dozen on the sell side. In every one all parties were disclosed in writing, all parties were represented by legal counsel, and no major issues occurred in any of them.
great points I just want to add that if anyone actually took the time to read a mortgage or Deed of Trust ( I know most dont read a 5 or 25 page document) they just sign it LOL. However in virtually every one of those instruments there is a section called:
EVENT OF DEFAULT !
this includes non payment of tax's insurance waste etc.. But the other one is alienation of title IE transfering title.
The remedies spelled out in this document that no one ever reads is:
A. in the Event of a Default the lender has the right to accelerate the loan and call it all due and payable. NOT the obligation to do so.
From my perspective the real heartburn here is beginners, undercapitalized, neferious investors doing these transactions without full disclosure to the owner of the property who signed on the Mortgage/Deed of trust and the accompanying Note. And when you have folks not ready for prime time come into title all sorts of bad stuff can happen and the original seller can get Fubared in a major way and have no idea the risk they are taking on.
- 2moNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
great post. IMO it's a perfectly valid strategy for an advanced, well capitalized investor...
- Investor · Pacific Northwest · Member since 2026 · 65 posts · 16 votes1mo
Calling due on sale is a real risk, but like most others, it's incredibly rare. It should be planned for so that you're not underwater if it does happen. Most of the time, especially if you're catching up arrears and getting payments in on time, they're happy to work with you, and it tends to be a non-issue.Some people will overleverage a borrowing property in order to give the seller a down payment. As long as the numbers all work out and there's enough equity on the table to do it safely, you can pull out a good amount to get the seller what they need so they can move on. Just make sure you're putting the right terms in place so that you make it back in the end.
- 1moVijay FriedmanBusiness MemberMiami, FL · Member since 2026 · 766 posts · 122 votes
Quote from @Victoria Spagnolo:
I'm learning about SubTo agreements and I'm wondering - do you always risk the lender calling the mortgage due? How often does that actually happen? Is there anything you can do preemptively to avoid any issues with the bank?
Also, do you typically give the seller a "down payment" so he makes some money on the deal? How much?
Thanks in advance!
@Victoria Spagnolo
Due-on-sale is definitely one of the biggest considerations with subject-to deals. While it's a contractual right lenders have, many investors focus on understanding the risks rather than assuming it will or won't happen. Every deal is different, so it's worth working with experienced legal and title professionals to structure transactions properly. As for seller equity, the amount really depends on the property's equity, motivation, and the overall terms being negotiated.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.