Seller Carryback Stacking with Subject-To: The "Pace Morby Method" Explained

If you have searched for creative financing online, you have probably seen the phrase "the Pace Morby method." Pace Morby is a real estate investor and educator whose name has become closely tied on the internet to subject-to and seller-financed strategies, including combining them into a "stack." This page explains that structure in plain English so you can understand how it works, what it can and cannot do, and what to watch out for. We are independent and are not affiliated with or endorsed by Pace Morby or his companies. His name is mentioned only because people search for it.

This guide is educational and is not legal, tax, or investment advice. Results vary, and these deals involve contracts and state laws. Use a real estate attorney.

What "stacking" means

Stacking means layering more than one form of seller-related financing on the same property. A common version combines two pieces:

• A subject-to purchase. The buyer takes title subject to the seller's existing mortgage and makes those payments
• A seller carryback. The seller agrees to accept part of the price over time, with a promissory note from the buyer secured behind the existing mortgage

Instead of paying the seller all of their equity in cash at closing, the buyer pays part of it up front, or none of it, and owes the rest through the carryback note. The result is that the buyer's cash needed at closing can be low, and the seller receives payments over time.

A hypothetical example

Imagine a property worth $300,000 with an existing loan of $200,000 at a low rate. The seller is willing to sell for $290,000. The buyer's structure might be:

• Take title subject to the $200,000 existing mortgage
• Pay the seller $10,000 at closing
• Sign a seller carryback note for $80,000, payable over several years, secured by a second lien

The total is $290,000, but the buyer only needed $10,000 plus closing costs at closing. The buyer then carries two payments: the existing mortgage payment and the carryback payment. This example is only an illustration. Real deals depend on the seller's needs, the property, the loan terms, and state law, and they may be structured very differently.

Why sellers and buyers consider it

Buyers may need less cash at closing, may benefit from a low-rate existing loan, and may be able to close without a new lender's approval. Sellers may get a sale they could not otherwise complete, may stop foreclosure or credit damage, and may earn interest on the carryback note. The structure only works when the seller understands it and agrees to it.

Underwriting the stack

The most important question is whether the property can carry all the debt. Add up:

• The existing mortgage payment, including taxes and insurance
• The carryback note payment, if it is not deferred
• Property management, maintenance, and vacancy allowances

Then compare that total to the property's realistic rent or, if you plan to sell, to the resale value. Many investors look for a comfortable cushion between rent and total payments, because stacked debt leaves little room for error. Ask what happens if the property sits vacant for three months.

Risks specific to stacking

• The due-on-sale clause. The existing lender can demand the full balance if the property transfers without consent. If that happens, the buyer must pay off or refinance the first loan, and the carryback note is affected too
• Balloon payments. Many carryback notes come due in a few years. If you cannot refinance or sell by then, you may be in default
• Over-leverage. Layers of debt reduce your cushion if values fall or rents drop
• Junior lien position. The carryback holder is behind the first mortgage, which matters if the property is foreclosed
• Documentation and recording. The note, the deed, and the lien must be drafted and recorded correctly
• Seller protection and fairness. A seller who does not fully understand the risk can end up hurt if the buyer stops paying. Full disclosure protects everyone
• Regulations. State laws vary on distressed sellers, disclosures, wholesaling and marketing rules, and financing a residential property. Some situations carry additional federal and state rules

Practical ways to reduce risk

1. Use a real estate attorney to draft the purchase agreement, note, deed, and disclosures
2. Close through a title company or attorney and record everything
3. Use a third-party loan servicer for the payments so there is a clear record
4. Confirm insurance with the correct named parties and keep it current
5. Keep cash reserves for repairs, vacancies, and a possible loan call
6. Have a written exit plan: a refinance, a sale, or a hold

Exit strategies

The most common exit for a stack is to refinance everything into one new loan, such as a DSCR loan, once the property is stable and the numbers support it. That new loan pays off the existing mortgage and the carryback note. Another exit is a sale. Ask early whether the property will appraise high enough and produce enough rent to support the refinance you plan.

A word about courses and educators

Many educators teach creative financing, and the information varies in quality. Before you rely on any program, check the terms and whether the results shown are typical, ask for references, verify claims independently, and confirm what applies in your state. Advertised results are not a promise that you will get the same outcome.

How we can help

We work with real estate investors to evaluate deals and match the financing pieces, including the rehab loan before the stabilization and the refinance after it. Our other guides on subject-to financing, creative real estate financing, and DSCR loans cover related steps. Talk to us about your deal, and we will tell you what to prepare.

Terms, availability, and approval depend on the parties, the property, and the lender. Nothing here is a guarantee or a commitment to lend.