Last Updated on June 4, 2022 by Maria James
An assumption is one of the various options available to you if you are behind on your mortgage payments. Looking for an investor to take over my mortgage in order to save it from going into foreclosure. When a new owner acquires responsibility for the mortgage loan. That individual takes on personal responsibility for the debt associated with the mortgage.
Or, if you inherit a mortgaged property, or get ownership through a divorce or other intra-family transfer, but can’t afford the payments, assuming the loan as part of a loan modification might allow you to keep the property.
Acquiring Knowledge about Mortgages and Promissory Notes
You need to have a solid grasp of the distinctions between a promissory note, a mortgage. And a deed of trust before you can completely comprehend what it means to take on the responsibility of a loan. (For the sake of brevity and clarity, throughout this text, the phrases “mortgage” and “deed of trust” will be used interchangeably.)
People often refer to both the promissory note and the mortgage by the word “mortgage,” which may be confusing. However, the note is the legal instrument that establishes the borrower’s responsibility to repay the loan. On the other hand, the mortgage provides the lender with a means to make good on that promise; specifically, the lender has the ability to foreclose on the property and then use the revenues from the sale to the repayment of the debt.
Following a foreclosure, the lender has the right, in the majority of states, to pursue the borrower for the amount of the borrower’s total debt that is not covered by the selling price of the property that was foreclosed on. A borrower’s legal responsibility for making up the shortfall is outlined in the promissory note.
To Take Over Payments on a Loan, What Does That Mean?
An assumption is a transaction in which a new individual takes over financial obligation for the loan—either with or without a release of the original borrower’s duty. An assumption may take place with or without a release of the original borrower’s liabilities.
Generally speaking, an assumption operates as follows: Consider the following scenario: you wish to sell your house to another person. And have them take over the duty of repaying the mortgage loan that you took out on the property. If an assumption is allowed, the lender will usually require the new owner to qualify. Go through an approval process to assume the loan. The lender will usually investigate the buyer’s credit. In addition to verifying the buyer’s job and income, before extending credit to the buyer. After the approval of the assumption and the signing of the relevant paperwork. The buyer will step into your shoes as the original borrower. Begin making the monthly payments and complying with the other conditions of the existing loan.
The Responsibility of the Borrower After an Assumption
In certain versions of the scenario, the lender will absolve the original borrower of the responsibility that was incurred as a result of the promissory note. In other circumstances, however, the original borrower continues to be responsible for the note. If the new owner stops making mortgage payments and the home is lost to foreclosure as a result. The lender may seek a deficiency judgment against the original borrower as well as the person. Who assumed liability in order to collect the debt. However, this will depend on the laws of the state in which the property is located as well as the circumstances surrounding the situation.
Due-On-Sale Clause: How Can I Determine If My Loan Can Be Assumed By Someone Else?
You are allowed to transfer the property together with the loan to a new owner if the relevant documentation indicates that the loan may be assumed by the new owner. In the event that the loan contract is silent on this subject, however. The loan is regarded to be assumable in the majority of states.
However, a “due-on-sale” clause may be included in a significant portion of mortgage contracts. If not the vast majority of them. According to this provision. The complete loan sum may be accelerated in the event that the property is sold to a new owner. This indicates that the full balance of the loan is required to be returned in the event that this clause is activated. When a mortgage loan has a due-on-sale clause, it is not possible to assume the debt in most cases.
Examine the terms of your mortgage contract to see whether or not your loan is governed by a due-on-sale provision. Be mindful that the documentation may not include the terms “due on sale” in a direct or explicit manner. It’s possible that they’re talking about a “transfer of the property” or anything else along those lines.
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