The Due Diligence Checklist Before a Subject To Deal

You found a seller who owes $210,000 on a mortgage, the house is worth $260,000, and they need out fast. The subject to structure looks clean on paper. Before you take over those payments, here's exactly what to check and in what order.

What you need to verify before closing

Pull these five things before you sign anything: the current payoff and loan status from the servicer, the exact note terms including any due on sale language, a full title search, the insurance situation, and the seller's real reason for selling. Skip any one of these and you're guessing with someone else's mortgage.

Most people doing their first subject to deal get excited about the numbers and rush past the paperwork. That's how you end up owning a house with a lien you didn't know about or a loan that's already 60 days delinquent.

Get the mortgage statement, not the seller's memory

Sellers misremember their own loan terms constantly. I've had sellers tell me they had a 4% rate when it was actually 6.25%. I've had sellers swear they were current when they were two payments behind.

Ask for the actual mortgage statement, dated within the last 30 days. It shows the loan balance, the interest rate, the monthly payment including escrow, and whether the account is current. If they can't find it, have them call the servicer or pull it from the online portal. This takes them ten minutes.

If the loan is already in default, that changes your numbers immediately. A $3,400 reinstatement to bring it current isn't a dealbreaker, but you need to know about it before you calculate your entry cost, not after you're already the one making payments.

Check for a due on sale clause, and understand what it actually does

Nearly every conventional mortgage has a due on sale clause. It gives the lender the right to call the full loan balance due if the property transfers ownership without their approval. This is standard, not rare, so finding it in the note isn't a red flag by itself.

What matters is understanding the actual risk. Lenders enforce due on sale clauses selectively. They're far more likely to call a loan when interest rates have risen and they want the old low-rate paper off their books, and far less likely to call a loan on an FHA or VA loan being assumed by someone making timely payments. Rates were near 7% for conventional 30-year loans through most of 2025 and into 2026, which means older 3% and 4% loans are exactly the kind lenders have incentive to call.

Read the note yourself. Don't take the seller's word or your own assumption about what "most mortgages" say. Terms vary, and some older loans or portfolio loans don't have this clause at all.

Run a full title search before you touch the deed

This is the step people skip most often because it costs money and takes a few days. Don't skip it.

A title search tells you about liens beyond the first mortgage: a second mortgage, an HOA lien, a judgment against the seller, unpaid property taxes, a mechanic's lien from a contractor who never got paid. Any of these can attach to the property and become your problem the moment you take title.

I owned a title company for years. The deals that blew up after closing almost always had a lien that showed up in a search nobody ran. A $4,200 unpaid HOA assessment doesn't show up because a seller forgot to mention it. It shows up because you paid $150 for a title search and read the results.

Order it through a title company or attorney, not a free online lien search. Free searches miss recorded documents constantly.

Confirm the insurance situation before closing, not after

The homeowners insurance policy is in the seller's name. When you take title, that policy doesn't automatically transfer to you and it may not cover a house the named insured no longer owns.

Two paths here. You can have the seller keep the policy in place and you reimburse the premium, which is common but leaves a gap if the seller lets it lapse without telling you. Or you get your own policy and list the lender as mortgagee, which is cleaner but requires more coordination since the loan is still in the seller's name.

Either way, get proof of current, active coverage before closing, and set a calendar reminder for the renewal date. A lapsed policy on a property with a $210,000 loan balance is not a small risk.

A worked example with real numbers

Here's a deal I'd actually evaluate this way. Seller owes $195,000 on an FHA loan at 3.75%, monthly payment of $1,540 including taxes and insurance. House is worth $245,000 based on recent comps. Seller is current, needs to relocate for a job in six weeks.

Step one, mortgage statement confirms the $195,000 balance and current status. Step two, note shows standard due on sale language, but it's an FHA loan, which historically sees fewer due on sale calls when payments stay current. Step three, title search costs $175 and comes back clean, no liens beyond the first mortgage. Step four, insurance is active through the seller, premium is $1,800 a year, seller agrees to stay on the policy with you reimbursing.

Total equity position: $245,000 minus $195,000 is $50,000. If you get the deed for $8,000 cash to the seller plus covering $1,200 in their moving costs, you're in for $9,200 against $50,000 in equity, taking over a $1,540 payment on a 3.75% rate that doesn't exist in the current market. That's the deal. Everything above confirmed it was safe to do.

The honest limitation here

None of this eliminates the due on sale risk. A clean title search and a current loan don't stop a lender from technically having the right to call the note. What this checklist does is tell you the loan is real, the terms are what you think they are, and there's no hidden lien waiting to surface. It does not guarantee the lender will never notice the transfer. Anyone telling you subject to deals carry zero risk of acceleration is selling you something.

Where this gets easier

Running all five of these checks manually on every deal is exactly the kind of thing that gets skipped when you're moving fast on a seller who needs an answer this week. Deal Machine builds this into the process so you're not chasing mortgage statements and title reports by hand while a seller's patience runs out. If you're doing subject to deals with any regularity, it's worth seeing how it handles the checklist for you: readmoneydecoded.com/deal-machine.

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