Subject to

Key Takeaways

• In a subject-to transfer the buyer takes title and starts making the payments, but the existing loan stays in the seller's name and the seller stays personally liable to the lender.
• An assumption is the opposite trade: the buyer signs on to the debt, and only a written release from the lender takes the seller off it.
• The lender is not a party to a subject-to deal and has not consented to anything, so a due-on-sale clause can let the lender call the entire balance due.
• In Washington the real estate excise tax is measured on total consideration, which includes loan balances remaining unpaid at the time of sale (RCW 82.45.030).

What It Means

A subject-to purchase moves ownership of the property without moving the debt. The seller signs and delivers a deed, the buyer takes title and begins making the monthly payments, and the existing loan stays exactly where it was, in the seller's name, secured by the same Deed Of Trust against the same property.

The lender is not part of any of this. Nobody asked the lender for permission, and the lender never released the seller from the promissory note. That is the point of the arrangement and also its risk. If the buyer stops paying, the missed payments land on the seller's credit, and the lender can foreclose the property the buyer now owns. The buyer can lose the house while the seller is still the one the lender pursues.

Buyers use subject-to deals to inherit a below-market interest rate or to skip loan qualifying. The catch is that nearly every modern loan carries a Due On Sale Clause, which gives the lender the right to accelerate the full balance when the property changes hands. Contrast this with an Assumption, where the buyer formally takes on the note and the lender decides whether to release the seller.

How It Works in Washington

In Washington, a subject-to transfer is still a sale, and the excise tax is measured accordingly. RCW 82.45.030 defines total consideration to include the amount of any lien, mortgage, contract indebtedness, or other incumbrance remaining unpaid on the property at the time of sale. A buyer who hands the seller very little cash therefore still owes Real Estate Excise Tax on the loan balance the property was taken subject to.

Washington also criminalizes the abusive version of the deal. Under RCW 61.34.020, an act of equity skimming includes buying a dwelling on a representation that the existing loan payments will be made, then failing to make them within two years while applying the rents from the property to the buyer's own benefit. RCW 61.34.030 makes a willful pattern of equity skimming a class B felony.

A broker involved in one of these transactions carries the ordinary Washington disclosure duty. RCW 18.86.030(1)(d) requires the broker to disclose all existing material facts known to the broker and not apparent or readily ascertainable to a party, and who remains liable on the note is squarely one of those facts.

Example

Marisol owns a Spokane rental with a deed of trust balance of $268,400 at 3.25 percent. Devin offers her $41,600 in cash and agrees to take title subject to that loan instead of getting his own financing. Marisol signs a statutory warranty deed, Devin records it, and Devin starts sending the lender the monthly payment.

For excise tax, total consideration is the $41,600 in cash plus the $268,400 still owed, or $310,000, and the affidavit reports that figure rather than the $41,600 of cash that changed hands.

Fourteen months later Devin stops paying. The lender's records still show one borrower, Marisol, so the late payments hit her credit, the notice of default goes to her, and the trustee schedules a sale of the house Devin owns. Devin never signed the note, so the lender has no claim against him for the debt, and Marisol has no claim on the property she already deeded away.

Common Mistakes and Exam Traps

• Subject to and assumption are not synonyms. Only an assumption puts the buyer on the note, and only a lender release takes the seller off it.
• A due-on-sale clause does not make a subject-to transfer illegal. It gives the lender an option to accelerate the balance, which the lender may or may not exercise.
• Recording the deed transfers title to the buyer, but it changes nothing about who owes the loan.
• The lender's silence is not consent. A lender who was never asked has not approved the transfer and keeps every remedy in the loan documents.