The Morby Method Explained: Subject-To, Seller Finance and Where the Money Comes From

Pace Morby teaches a family of creative-finance strategies. The Morby method is one of them, and it is often confused with subject-to and plain seller finance. Here is how they differ and where short-term money fits in each.

What is the Morby method?

Pace Morby's REI Pocket Dictionary defines the Morby method as a solution for sellers who want a high price for their property: get a loan for the purchase and have the seller finance the down payment, done in two transactions through a title company and/or a promissory note or operating agreement.

The structure is sometimes called the stack method, because you stack two sources of money: a first-position loan from a lender, and a second-position note carried by the seller. Axelrad's transactional page groups the Morby method and stack method with gap and cash-to-close transactional, all describing a seller-financed acquisition where somebody still has to bring the rest of the money to the table.

What is subject-to (subto)?

Subject-to means buying a property subject to the existing mortgage. You take title and take over the payments, but the loan stays in the seller's name. The same dictionary describes it as taking over someone's mortgage payments, done when the seller has no equity, with the buyer taking on the original loan's payments and interest rate. SubTo is also the name of Pace Morby's mentorship community.

What is seller finance?

Seller finance means the seller acts as the bank. They use their equity, or a free-and-clear property, to carry a note, and you pay them over time on agreed terms.

How do the three compare?

Where does the money come from in a Morby method deal?

Even a well-structured stack leaves cash needs along the way:

1. The earnest money deposit (EMD) when you sign. EMD funding covers a fully refundable deposit, and it covers land deals as well.
2. Cash to close. After the first-position loan and the seller's note, there is often still a gap at the table. Axelrad's gap transactional funding fronts that cash to close so the purchase funds on time, starting at 2.5%. It can be repaid several ways, but typically after closing through the seller carry. See our gap funding page.
3. A same-day resale. If you are wholesaling the deal through a double close instead of keeping it, transactional funding covers the A-B purchase, starting at 1 point.

Each request needs its own review, and approval of one does not mean approval of another. Confirm the repayment source for every piece in writing.

What are the risks?

• Due-on-sale clauses. Many mortgages let the lender call the loan due if the property is transferred without consent. Federal law (12 U.S.C. 1701j-3) generally allows lenders to enforce these clauses, with listed exceptions. This matters most for subject-to, and it is why a transfer is not the same as lender consent.
• First-lender rules on second liens. In a Morby method deal, the first-position lender may restrict secondary financing such as a seller note. Confirm in writing early.
• Debt service. Two notes mean two payments. Make sure the property's income covers both.
• The seller's understanding. A seller who does not fully understand carrying a note, or keeping a loan in their name, is a deal that can unravel.

Rules on seller financing, subject-to transfers and creative structures vary by state. This is general information, not legal advice. Have a real estate attorney review your structure.

Is the Morby method a loan or a course?

It is a deal structure, not a loan product. You can learn it in a course, but the money in the deal comes from real lenders, real sellers and real agreements. For a side-by-side of how these strategies relate to gator funding, see Morby method, subject-to and gator funding: differences.

Key takeaways

• The Morby method stacks a purchase loan with a seller-financed down payment, closed through a title company.
• Subject-to takes over the seller's existing mortgage payments; seller finance uses the seller's equity.
• Morby method deals still need cash: the deposit, cash to close and sometimes a same-day resale.
• Axelrad funds EMDs, gap transactional starting at 2.5% and standard transactional starting at 1 point.
• Check due-on-sale exposure and first-lender rules, and have an attorney review the structure.

Talk to Axelrad

Building a stack and short on the cash to close? Send the deal through Axelrad's application, and see gap funding for current terms.