Quick Answer
Both wraps and subject-to transactions may keep existing financing in place, but a wrap creates a new seller-financed obligation around the debt while a subject-to transaction acquires the property subject to existing financing without formal assumption.
Wraparound mortgages and subject-to transactions are sometimes grouped together as creative financing structures that keep existing financing in place. While they share certain characteristics, they are fundamentally different in structure, risk, and execution.
Subject-To Example
Property worth $225,000 with an existing mortgage of $150,000. Buyer acquires title subject to the existing loan. Buyer makes payments directly to the existing lender. Seller remains obligated on the note. No new financing is created between buyer and seller.
Wrap Example
Property worth $350,000 with an existing mortgage of $200,000. Buyer puts $25,000 down. Seller finances the remaining $325,000 through a wraparound mortgage. The seller holds a new note from the buyer. Buyer pays the seller or a servicer under the wrap terms. The seller continues paying the $200,000 underlying loan.
The Simple Difference
In a subject-to transaction, the buyer steps into the payment stream of the existing loan. The buyer pays the existing lender. No new seller-financed obligation is created.
In a wrap, the seller creates new financing that wraps around the existing debt. The buyer pays the seller under new terms. The seller continues servicing the underlying loan from the payments received.
Why It Matters
The difference matters for title, lien priority, servicing, default, disclosure, and the rights of each party. See What Is a Wraparound Mortgage? and the investors section on subject-to transactions for more detail.
What They Have in Common
Both structures require careful consideration of lender rights, due-on-sale clauses, taxes, insurance, servicing, title, and default scenarios. Both benefit from experienced title and legal professionals.