Assumable vs. Subject to - Posted by Reif

Posted by JPiper on April 03, 1999 at 20:24:25:


I’m gathering you’re asking this question in the context of your posting below of a couple of days ago?.so I’m going to answer it that way. If I gathered incorrectly let me know.

In your situation the note that you have signed is in essence a freely assumable note?.similar to a “non-qualifying assumption”. Therefore theoretically you can sell the property and have the buyer assume the note, without the approval of the private mortgage holder. That’s my understanding of your existing situation. IF you do this however you have NOT been released from liability for this note?.and therefore in the event of a default on the part of the new buyer you have an ongoing liability. IF the private mortgage holder approved the new buyer and released your liability you would have eliminated this problem.

If the new buyer acquired the property and took over the existing mortgage “subject to”, you still remain liable under the note?.exactly the same as above. However what you don’t say is whether the mortgage has a due on sale clause in it. I bet it does, because the clause you inserted did not by itself remove the due on sale clause. If it does one of the primary issues is whether the mortgage holder would exercise his right under the due on sale clause. Since this mortgage holder is a private party, it’s difficult to say?.but he’s not going to function like an institution in all probability, so he may not look the other way.

The other possibility that was mentioned below is selling the property with an AITD (probably preferable in California). In this situation you still remain liable for the underlying mortgage. However, if the buyer pays you on the AITD, and you then pay the underlying mortgage holder, in all likelihood this situation will remain undetected in terms of the due on sale clause.

What does the assumption mean if one doesn’t get freed from liability? The assumption will mean that you haven’t violated the due on sale clause.


Assumable vs. Subject to - Posted by Reif

Posted by Reif on April 03, 1999 at 18:44:01:


Conceding that legal advice is always appropriate, someone please explain the difference between an assumption of a private mortgage and buying subject to.

I understand subject to in the context of an institutional mortgage and attempting not to trigger the DOS clause, but what does an assumption mean if one doesn’t get freed from liability?

I mean, what’s the point?