Posted by JohnBoy on December 20, 1999 at 13:21:12:
Taking property “subject to” the existing loan means the lender is NOT aware. You are entering into a contract with the seller by you agreeing to take over their payments. The seller deeds the property to you, you become the legal owner of the property, you are not liable to the lender for the loan, the seller remains liable. However, you are liable to the seller to make those payments to the bank on time.
This commonly done by having the seller deed the property into a trust naming them as the beneficiary. The seller then assigns his/her beneficial interest over to you making you the beneficiary of the trust. Your the legal owner of the trust that has title to the property. If the lender was to check title it would show the trust as the owner. It does not show who the beneficiary is which helps in hiding the fact that property has changed ownership. This helps from the lender finding out where they could call the loan due under the “due on sale” clause written in the mortgage agreement.
If all the payments are made on time then it’s highly unlikely the lender would find out and/or call the loan due. Worst case senerio the lender does find out and calls the due. Then you just refinance the property assuming your in a position to do so. That’s why it’s important to disclose all the risks to the seller prior to doing this.