Massachusetts Real Estate License Practice Test

What does 'Subject To' refer to in real estate financing?

1. Taking over a loan without being liable for the mortgage

2. Defaulting on a loan and paying higher rates

3. Transferring ownership of a mortgage

4. Adjusting loan terms based on market conditions

The correct answer is: Taking over a loan without being liable for the mortgage

'Subject To' refers to a real estate financing method where a buyer takes over the existing loan obligations of the seller without officially assuming personal liability for the mortgage. In this arrangement, the buyer makes payments on the loan, but the mortgage remains in the seller's name. This can be advantageous for buyers, as it allows them to acquire a property and make use of potentially favorable loan terms already established by the seller without having to qualify for a new loan or take full responsibility for the mortgage. This financing strategy is often used in situations where the original mortgage has a low-interest rate or favorable terms that the buyer wants to leverage. The original borrower (the seller) remains ultimately responsible to the lender for the loan, but this can create opportunities for the buyer to invest in real estate even if they might not qualify for traditional financing options. The other choices do not accurately reflect what 'Subject To' entails. For example, simply defaulting on a loan carries serious consequences and does not relate to the acquisition strategy described. Similarly, transferring ownership of a mortgage or adjusting loan terms indicates actions that are distinct from the direct taking over of an existing loan obligation under its current terms without assuming liability.