Quick Answer
A loan assumption involves lender approval of the buyer taking over an existing mortgage with the seller typically released. A subject-to transaction transfers the property subject to existing financing without lender approval, and the original borrower generally remains obligated.
The Key Question: Did the Lender Approve the Buyer?
The single most important distinction is whether the lender approved the buyer as the new borrower.
In an assumption, yes. The lender evaluates the buyer application, approves them, and typically releases the seller from liability. The buyer becomes the borrower of record.
In a subject-to transaction, no. The buyer takes title subject to the existing financing, but the lender did not approve the buyer. The seller remains on the note and is ultimately responsible for the debt.
Why This Difference Matters to Title
When a title company examines a transaction, the distinction changes how the existing lien is handled. In an assumption, the existing lien may stay but the new borrower is reflected. In a subject-to transaction, the existing lien remains with the original borrower. The title company needs to know which structure applies.
Mislabeling a subject-to as an assumption can create serious problems down the road. For more on assumptions, see What Is a Loan Assumption?
Follow the Money: Assumption vs. Subject-To
Assumption: Buyer pays the lender directly as the borrower of record. The seller is released. The lender consent has been obtained.
Subject-To: Buyer may pay the lender directly, but the lender still holds the seller responsible. The lender has not approved the buyer. The seller credit is tied to the loan.
For more on the subject-to structure, see the investors section on subject-to transactions.