Assignment of Mortgage Debt

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A very popular technique for selling a property quickly is to sell the property “Subject-To” the existing financing. This is a variation of owner financing wherein in the transaction the seller makes an assignment of motgage debt to the buyer and also deeds the property to that buyer. The buyer then begins making the payments on the loan either through a note servicing company or directly to the lender themselves. Once the transaction closes the seller is no longer involved with the property. This type of transaction is very similar to a mortgage assumption; however, technically, it is not an assumption, because the original loan is still in the seller’s name.

It is important to note that almost all loans in recent years are not assumable.

Example Assignment of Mortgage Debt:
Home value: $150,000
Existing loan amount: $135,000
Cost of sales: $10,000 (this is typical for this value of home)
Sales price: $140,000

In order for this home to be sold through normal means, i.e. with a REALTOR, it would have to be sold for $155,000 or more to pay off the existing loan amount and closing costs (i.e. REALTOR fees, seller concessions, etc.). By using an assignment of mortgage debt, the original owner is able to sell the home to a new buyer for $140,000 with very little closing costs, title insurance and a few other small fees paid for by the buyer.

Advantages and Disadvantages of Assignment of Mortgage Debt
The benefits to using an assignment of mortgage debt are that the buyer does not need to qualify for a loan through a bank, pay for any appraisals on the property, there are no loan origination fees, and there are typically no loan application fees. These savings make a tremendous difference in the transaction and thus make it much more affordable.

The disadvantage to an assignment of mortgage debt is that the original loan remains in the name of the seller. If the buyer were to default on the loan, it would in turn affect the seller’s credit. If you selling a property this way, you will want to do your due diligence on the buyer to make sure they have strong financial credentials.

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