08/17/2026
For all of you interested in why subject to deals are a horrible idea for sellers to take. Here are just a few bullet points. These people keep calling me and they keep coming up with new ways to try and convince me that these deals are not dangerous. My position will never change on this. I have seen too many defaults.
They are ignorant to the damage that this can do to a seller and I will not be party to this type of deal with a retail seller. Most of my investors will not consider it either. I will talk them out of it with all I got.
At the end of the day they are not in the best interest of a seller to take unless the seller is extremely knowledgeable on the subject which in most cases they are not.
Here are 15 reasons why you dont do a deal like this...EVER
1. The buyer controls the property while the seller carries the debt.
This is probably the biggest practical problem. The seller may no longer own the house, yet a potentially six-figure debt remains in the seller's name. The investor gets the upside from owning the property; the seller retains significant loan-related downside.
2. A late payment can hurt the seller's credit.
If the investor is supposed to make the mortgage payments and starts paying late, the lender's borrower is still the seller. A private contract saying the investor is responsible for payments doesn't necessarily change the seller's obligations to the mortgage company. Even when the buyer says they will hold an escrow it still is dangerous.
3. If the investor stops paying, the seller can face foreclosure consequences.
Suppose the investor rents the house, collects rent and then stops paying the mortgage. The lender's loan documents are still with the original borrower. The seller may have to take legal action against the investor while simultaneously dealing with the lender. Usually by the time they default and the seller finds out...the damage is already done and can't be reversed
4. There can be a due-on-sale problem.
Federal law generally permits lenders to enforce contractual due-on-sale clauses when property securing the loan is sold or transferred without the lender's consent. There are specific protected transfers—certain transfers involving spouses/children, inheritance, qualifying trusts, etc.—but an ordinary investor purchase "subject to" the mortgage isn't one of the listed statutory exemptions.
In other words, putting the property into a trust doesn't automatically make an investor subject-to transaction exempt. The federal trust exception has particular requirements, including that the borrower remain a beneficiary and that the transfer not relate to a transfer of occupancy rights.
5. The lender could accelerate the loan.
If the transfer triggers an enforceable due-on-sale clause, the lender can potentially demand the remaining loan balance according to the mortgage documents.
6. The seller may have difficulty qualifying for another mortgage.
Even though the seller sold the house, the old mortgage can continue appearing as the seller's debt. Depending on the new lender's underwriting rules and documentation, that can complicate the seller's debt-to-income picture when trying to buy another home.
7. The investor can create problems with the property the seller no longer controls.
Taxes, insurance, HOA obligations, maintenance, tenants, rental inspections, and other property issues can become messy. The seller's primary concern is that the collateral securing their existing loan is now controlled by somebody else. In a city like Warren you can be put in jail for not appearing in court and they won't care about your subject to deal. OR YOU
8. Insurance can become complicated.
The ownership, occupancy, insured parties and mortgagee need to be handled correctly. A poorly structured transaction can create insurance problems precisely when a major claim occurs.
9. The investor could subsequently transfer their interest.
Depending upon the transaction documents, the original seller could eventually have very little practical control over who controls the property while the original mortgage remains outstanding.
10. The seller still owes the mortgage.
Giving the buyer the deed does not automatically transfer the mortgage obligation. The investor owns the house, but the original borrower can remain personally obligated to the lender. Michigan's required statutory disclosure essentially says exactly that.
11. An indemnification agreement isn't the same as getting the seller released from the mortgage.
12. An investor can promise: "I'll make the payments and indemnify you."
That's a contractual remedy against the investor. It doesn't necessarily make the mortgage company release the seller.
13. The seller may have to sue to enforce those protections.
That's a major difference between a promise from the buyer and a lender-approved assumption/release. If the investor breaches, the seller may need an attorney and litigation to enforce the agreement. This will cost a seller a small fortune and take a very long time to play out.
14. Michigan Compiled Laws §445.1627 requires residential sale/transfer contracts involving property subject to a mortgage to contain substantially this warning:
"Seller understands that consummation of the sale or transfer ... shall not relieve the seller of any liability that seller may have under the mortgage(s)..."
15. The seller can essentially be in the position of:
"I don't own my house anymore, but I still owe the bank for it."
Meanwhile, the investor can own/control the property and make the payments on a loan for which the seller remains obligated.
That doesn't mean every subject-to transaction is illegal or that one can never be structured appropriately. But a seller should understand that "the buyer is taking over your mortgage" can be very misleading if it suggests the lender is releasing the seller from the debt. A true lender-approved assumption with a release of liability is materially different.
These types of deals need to be done with attorneys not regular people. NO EXCEPTIONS
If you're dealing with investors telling you as a Michigan homeowner that putting the property into a land trust means the seller (You) is no longer responsible for the mortgage, that is something I'd be particularly concerned about because that is a bold faced lie!
The federal trust exception does not simply say that any transfer involving a trust avoids the due-on-sale clause.
Michigan Legislature — Act 351 and MCL 445.1627
Hang up on these people like I do. They are not worth the time!
I hope this helps someone. If you have questions please contact a professional like me to walk you through it. I would put you with the right people when needed and save you a ton of headaches.
