Buying a Home "Subject To" Existing Mortgage With Mortgage Assignment

Asked by Zesta, Philadelphia, PA Sun Jan 30, 2011

My husband and I do not have great credit after having huge medical problems and being out of work. We are back to work now and want to buy a small home in New Jersey. Since we can't qualify for a loan, we have been offered a deal where the owner of the home will assign the mortgage to us and we will make the payments. We are told there will be a closing, title search and all that. Will cost us about $6500 total out of our pockets.

But someone told us this sounds like a mortgage assumption in which case we must be approved by the owner's lender. In searching online, I also read that the owner cannot assign a mortgage. The company that's doing this for us tried to explain that we are not doing an assumption. They say assigning a mortgage and assuming a mortgage are 2 different things.

Any realtors here that know what this is all about? Is it legal in New Jersey? We realize we may have to seek out legal advice before doing this.

Any feedback is welcome.

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12
Dp2, , Virginia
Sun Jan 30, 2011
BEST ANSWER
I just noticed that Zesta asked if sub2s are legal in NJ. Sorry, I was looking at Zesta's location, and answered for PA. I know other investors who are doing these kind of deals legally in NJ too. I don't know any real-estate attorneys in NJ, but let me know if you'd like to speak with one, and I'll reach out to some of my peers who invest there.

Definitely consult with a real-estate attorney before doing this.
1 vote
Jay Palmquist, , Menifee, CA
Sat Feb 19, 2011
It's hilarious how people can't distinguish between "mortgage assignment" and "mortgage assumption."

Of course "assignment" is not "assumption."

"Mortgage Assignment" is a hybrid of the All Inclusive Trust Deed, without the "all inclusive" element. It's not illegal to do. However, it does involve the simple transfer of the deed to the buyer subject to the existing loans.

The person most at risk here is the seller. It's can be a bad idea to transfer title to someone with shaky credit. Of course it depends on "why" the credit is bad, and "what" is bad about the credit. If the buyer simply doesn't pay his bills, that's one thing. If the buyer has one or two solvable credit issues stemming from a one-time event, that's something different.

In the case we're talking about, the seller want's the Buyer to have some skin in the game, thus the $6k or so.

Meantime, these are transactions that done only by professional investors as a rule. Otherwise, a transfer of a deed to a person with bad credit, who is going to live in the house, is a bad move by the seller (not the buyer). The seller has everything to risk.

Normally, when an investor takes over a loan, and takes title to the property, he then resells the property, but escrows the buyer's title until the buyer pays off the loans. At the same time, the investor stays with the deal, to protect the seller from loss.

Meantime, taking title subject to the existing loans such as what happens with an All Inclusive Trust Deed, the bank reserves the right to call that loan on the property that changes hands. However, unless there is a likelihood of the bank making more money off the loan (with higher rates, etc), the bank is happy that the loan is just being paid, and doesn't care whose paying it.

Again, a "mortgage assignment" bears no relationship with "mortgage assumption." NO "formal" assumption is taking place. It's more of a trust relationship between a seller and a buyer. If the seller trusts the buyer to make the payments on the loan, and is willing to transfer title, then the transaction is fairly identical to an All Inclusive Trust Deed, except that most likely the seller is not wrapping any equity with the existing loan, but simply deeding the property to the buyer in return for a small amount of cash in return for the deed. It's a common practice, but as a professional investor whose primary business is Subject To investing and merchandising, I would want more than $6k for the hassle.

That's my take.

BTW: No real estate agent is going to recommend this transaction, and fewer can make the distinction between "assignment" and "assumption" as has been shown on this thread.

If you would like more information on pros and cons of "mortgage assignment" go to my blog at profitableinvestingstrategies.blogspot.com

Have fun!

Jay Palmquist - Professional Sub2 Investor
2 votes
Success32, , Medford, NY
Fri Aug 24, 2012
After reading these posts my only comment is made from observation and intended to be thought provoking:
To anyone reading this, take note at who makes what type of response.
- The realtors and brokers seem to be anti Sub2.
Why? Is it because it's a creative financing technique they would never use in their profession because it wouldn't benefit them?
- The investors seem to be trying to offer an explanation as to why such financing alternatives are offered and how they can benefit the buyer.
Is it because they do stand to make a profit from these types of transactions? Or are they actually trying to help the hard working Americans who've been down on their luck and can use help getting back in the game?
1 vote
Dp2, , Virginia
Sun Jan 30, 2011
Please don't consider the following as any form of legal advise--it isn't. It's my opinion based on my experience doing mortgage assignments, mortgage assumptions, and creative financing (ie seller financing, lease-options, etc).

Subject-to financing (aka a sub2) is a form of seller financing. Although a sub2 and mortgage assumption are similar, they are different. Jessica is correct: mortgage assumption requires the buyer to qualify with the bank that owns the underlying loan(s). A sub2 doesn't have that same requirement. Another variant of the sub2 is the wrap; it also doesn't require the buyer to qualify, and a new mortgage gets created.

Lynn is incorrect: mortgages can be--and are--assigned legally. When banks pool and sell a bunch of notes together, they're assigning those mortgages. When investors (aka note buyers) buy mortgages from banks or individual sellers, the sellers have to assign those mortgages.

A sub2 is related to mortgage assignment (which is basically a sub2 with an assignment). Keep in mind that all sellers don't finance their properties with conventional loans (which often contain a due on sale clause); most of those loans are assignable. Additionally, I've worked with attorneys on deals in PA (and in other areas) where we did wraps on properties with pre-existing financing. (Call Bob Diamond [an attorney based in Pittsburg] for more info on sub2, mortgage assignment, and mortgage assumption.) Does this sale violate the "due on sale" clause? Yes, it does, and the bank has the right to call the loan. Banks often won't call those loans due as long as they're performing, and the taxes and insurance is current. They have much bigger fish to fry right now, and many of them can't afford to have any more non-performing loans on their books (because the FDIC or Fed will shut them down).
1 vote
Jessica Noon…, Agent, Medford, NJ
Sun Jan 30, 2011
Zesta,

You are absolutely correct. In order to assume a mortgage, you'll need to qualify with that specific lender. Could it be that the owner will hold the mortgage for you? In that instance, the current owner becomes "the bank" per se. Make sure you speak with a local broker or real estate attorney. Also make sure you get everything in writing from the Seller, with regards to their offer.

I'm happy to help if you have any further questions or concerns.

Sincerely,

Jessica E. Nooney
Weichert Realtors
(609) 654-8633 Ext. 121
(609) 276-8183 (CELL)
(609) 479-5333 (Direct Fax)
jnooney@weichert.com
http://www.yourjerseyrealtor.com

"Helping You Reach Your Real Estate Goals - Buying or Selling"
1 vote
cecilrussell, Both Buyer And Seller, Amarillo, TX
Sat Sep 20, 2014
Try to understand the legal difference between buying a home "subject to" and assuming the loan. When a property owner sells his home "subject to" the existing mortgage, the buyer must make the payments on the mortgage or lose the property by foreclosure. (That is the same as if the seller were not making payments on his loan.) However, the foreclosure will never show up on the buyer's credit record because the buyer was not legally obligated to make the mortgage payments on that existing loan. Such a foreclosure on a "subject to" mortgage will adversely affect to seller's credit record, not the buyer's. The safest way to protect both buyer and seller is to put the property in a land trust. Also, to secure the sellers interest, prepare a Judgment Note, sign it and have it recorded at the Court house. (Judgment Note download-http://www.donaldjweiss.com/judgment-note.pdf/
Make sure there is a clean and clear title, see if there is at least a 3 year history of on time payments. if you still are unsure, go to http://www.biggerpockets.com/ join-its free- and read the posts of real estate investors around the world. It is an excellent site to learn about real estate transactions. You might even repost your question there. Hope this helps. Lee Russell/Cleer-Enterprises-Amarillo, Texas
0 votes
Michelle Ell…, Home Buyer, Atlanta, GA
Thu Mar 7, 2013
Buying a house 'subject to' is the same as buying a house via a loan assumption. The difference is that when a house is being sold by an assumption then the loan and property get transferred into the buyers name.

When buying a house via 'subject to', however, the loan (debt) stays in the name of the seller and the property (deed) is changed over to the seller. What this does is takes the bank out of the equation all together. The term 'subject to' applies to the loan. The sale is subject to the terms of the original loan being met. Which is why the debt isn't switched to the buyer. The buyer makes the payments to the loan, meeting the terms of the loan and the loan never comes due. I hope this clears it up.
0 votes
NOT the same :P dang cold fingers.
Flag Fri Mar 8, 2013
Jessica Hood…, Agent, Gambrills, MD
Sun Jan 30, 2011
Oh Zesta, Run don't walk to the nearest real estate title company or attorney to pose this question of them. You are right that you would have to qualify for a mortgage in most instances. And if the owner is assigning the mortgage to you but somehow retaining title, why are there such high closing costs involved. This may be perfectly legal but something does not sound exactly right!
0 votes
Ines De La C…, Agent, Marlton, NJ
Sun Jan 30, 2011
Hello Zesta,
Thanks for your question.
As a buyer you have to do all the necessary research so you know exactly what you are getting into. A Realtor can not give you legal advice. Get all the numbers and facts as to what they are offering you and run it through a lawyer who will see what are your rights and obligations will be in your specific situation.
Call one of the following attorneys or pick one you may know: Mr. James Fahy 856-817-607, Mr. Blair Lane 856-528-3508, Mr. Richard Nocella 856-985-8072 or Mr. James Malloy 856-985-7848.
Good luck!
Sincerely,
Ines
Web Reference:  http://www.inesdelacruz.com
0 votes
Ines De La C…, Agent, Marlton, NJ
Sun Jan 30, 2011
Hello Zesta,
Thanks for your question.
As a buyer you have to do all the necessary research so you know exactly what you are getting into. A Realtor can not give you legal advice. Get all the numbers and facts as to what they are offering you and run it through a lawyer who will see what are your rights and obligations will be in your specific situation.
Call one of the following attorneys or pick one you may know: Mr. James Fahy 856-817-607, Mr. Blair Lane 856-528-3508, Mr. Richard Nocella 856-985-8072 or Mr. James Malloy 856-985-7848.
Good luck!
Sincerely,
Ines
Web Reference:  http://www.inesdelacruz.com
0 votes
Joe Montenig…, Agent, Sewell, NJ
Sun Jan 30, 2011
Zesta,
You're in over your head and asking for trouble..... I'd focus your energy on fixing your credit, staying back to work for a few years and saving some money.

I've never been a fan of "subject to" financing, especially for an inexperienced buyer with marginal financial stability...... you may be jumping from the frying pan into the fire.

Just my two cents. Click the thumbs up if you thinks that's helpful....

Joe
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Joe Montenigro REMAX Home Team
Broker, GRI (856)374-2800 x106
Serving Gloucester Twp, Washington Twp & South Jersey Real Estate Markets
Read: http://hometeamNJ.com/blog
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Note- Email me directly for follow up questions or answers, I don't monitor this forum for replies.
0 votes
Marge Bennett, Agent, Fort Myers, FL
Sun Jan 30, 2011
sounds suspicious to me. Is an appraisal part of this process? So many mortgages these days are way more than the current value. you do not want to be stuck with this. Have to ask yourself what the company doing this is getting out of it. There is specific language in each mortgage which says if it is assumable or assignable. Not all are the same. I have heard of assigning a contract, but never a mortgage.
My advise, talk to a good lender who can advise you what to do to raise your credit scores, do it and then see an experienced Realtor to find you a home.
0 votes
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