What happens to the seller's equity during a "subject to" mortgage arrangement?

In a "subject to" mortgage arrangement, the buyer takes over the mortgage payments while the original loan remains in the seller's name. The seller retains the title to the property but effectively transfers the responsibility of making payments to the buyer. The key aspect of this arrangement is that the seller's equity in the home does not diminish directly as a result of the buyer's payments.

When the buyer continues to make the mortgage payments, the equity may actually appreciate over time, depending on market conditions and property value increases. The seller’s original equity remains intact on paper, although the seller's name is still associated with the loan. Should the buyer default, the seller would still be responsible for the mortgage. Thus, while the seller still has equity, they have relinquished control over the day-to-day obligations and management of the property.

Understanding this dynamic is crucial because it highlights the complexity of financing arrangements in real estate transactions and the need for sellers to be aware of their financial exposure.