Loan Assumption.......Good Idea?? - Posted by Eric

Posted by Eric on April 20, 2006 at 22:19:46:

I think he has to many properties on his credit to go out on mortgage. I will definitly bring this up because I do not want to take the risk.

Loan Assumption…Good Idea?? - Posted by Eric

Posted by Eric on April 20, 2006 at 20:20:36:

In order to sell my South Florida property fast I have an offer from an investor to take my deed with a down payment and take over my monthly payments, but the mortgage would still be in my name. Is this a good idea?? Would it be a better idea from a risk standpoint for him just to take over the mortgage?? What are my options???

Re: Loan Assumption…Good Idea?? - Posted by options

Posted by options on April 21, 2006 at 12:19:16:

It depends on your financial situation. “Taking over the mortgage” by a “subject to” investor just means that he will make (hopefully) the mortgage payments for you. It does not mean that he is officially taking over the mortgage. The mortgage is still in your name and your name only - both in the eyes of the bank and the eyes of the law.

Once you sign over your deed/title you have no control or ownership of the property. This of course is why the investor wants the deed for himself - total control. All you own then is the mortgage and it is still legally your responsibility. You are still on the hook for the mortgage but without any ownership or control of the property. Of course if your credit and finances were totally trashed already you might not care, but if your finances are not totally in the tank and you have hopes of improving them, as mentioned by others here, this arrangement could potentially cause you various problems down the line.

For instance, what if the house burned down? What would happen? The tenant could opt out, the investor would still own the land but have no income, but you are still left with paying the mortgage. Always be sure the mortgage is covered by insurance in your name.

Also, keep in mind that at any time the bank could possibly call the mortgage due all at once. Who is going to cover this? Some investors might but many may not be able to do so. Also what if the investor could not cover the mortgage pmt for any other reasons? Maybe the tenant/buyer sues him and halts payments. Or his wife divorces him, takes the place, and then leaves you high and dry as well. You could potentially still wind up with a foreclosure. That is your risk.

If you still want the investor to take over your mtg pmts at least put in the agreement that the investor must refi the loan and take it out of your name within a couple years or so. That way you will get out from under sooner than later, and your credit report will then not show a mortgage in your name which could prevent you from buying stuff in the future. Of course if he can’t or won’t refi, then the house should come legally back to you (hopefully without any tenant/buyer complications).

The aforementioned wrap is a good idea as it would keep the title/deed still in your name along with the mortgage. However, subject to investors do not like the inherent problems of such an arrangement unless you have good credit and were financially stable otherwise. Subject to investors typically want complete control in order to keep owners with bad credit from causing further liens to the property at a later date.

Another option is to do a lease/option or a lease/purchase with a tenant/buyer or even with an investor. That way you are still in control of the title as well as the mortgage. When the tenant/buyer opts to purchase they will get a new loan to replace yours. In the meantime you get a higher than rental income to cover your mtg. pmts. (This is typically what a subject to investor will turn around and do himself)

Another alternative is to make the investor your partner in the ownership by adding him to the title, creating a partnership Agreement, and splitting equity sometime in the future. This way you are still on the title as an owner although the mortgage is still only in your name and per the Agreement the investor would have management control and possibly cash flow in exchange for a little down to you right now or whatever you guys cooked up.

Finally, if you just need to get out from under the mortgage, sacrifice your equity and sell for the balance of the mortgage. Place an ad that says “kick me, I’m down – will sacrifice equity!”. If there is enough equity an investor or new buyer may be interested in purchasing outright. That way your mortgage is replaced with a new one and you can get out of the picture completely and move on with your life.

Be careful - Posted by John Merchant

Posted by John Merchant on April 21, 2006 at 09:43:47:

Some things you might not know:

  1. The mortgage company will NOT let you off the mtg, even if a buyer assumes it you’ll still be liable for it and a default will go against your credit record.

  2. It’d be safer for you to sell on a “wrap” whereby the new buyer pays you every month, then you pay your loan…this way you know the payment’s been made…in fact, even if he doesn’t pay you, you could still go ahead and pay your mortgage on time so you know it’s paid.

  3. Lots of “subject to” buyers aren’t very scrupulous about doing what they orally promise, and if I were you, I’d make this proposed buyer give you some personal references and I’d check them out.

Some nationally known “gurus” have a bad rep for doing this to lots of home sellers…promising to pay, etc., but then leaving them in the lurch.

So please do lots of checking before you enter such an arrangement.

Re: Loan Assumption…Good Idea?? - Posted by dealmaker

Posted by dealmaker on April 20, 2006 at 21:42:08:

Well, he could take your deed and then NEVER make a payment. He could have a renter in there paying him and you would be HOSED as you don’t own the place but you’re still on the hook for the mortgage.

If someone wants to BUY something from ME, I’m not going to be the BORROWER, they are!


Re: Loan Assumption…Good Idea?? - Posted by ken

Posted by ken on April 20, 2006 at 20:36:55:

You may have future problems getting a mortgage even if he pays it on time.If he is late there will not be much you can do about it.Is there a reason he cannot get a new mortgage on his own?