Re: "Subject to" vs 'Assume" - Posted by hk CA

Posted by hk CA on March 15, 1999 at 15:22:38:

When you buy “subject to” the existing financing, the liability for payment of the loan remains with the seller (or the original borrower) and you are assuring the seller that you will make the payments. If you don’t, he is the one that is on the hook. In most cases the lender isn’t even aware there was a change of ownership.

When you assume a loan, you are asking the lender to make you the responsible party for repayment. You may have to qualify with the lender to assume the loan.

Naturally, it is best to buy “subject to.”

Why would a seller allow you to buy “subject to” when he is remaining liable for the loan?

  1. He may not be aware of the consequences.
  2. He may be getting a large down payment. He then would be fairly secure in the feeling that you would continue to make the payments.
  3. He may be getting more than the house is worth.
  4. He may be desperate to sell.
  5. He may have bought the property “subject to” and is not the responsible party on the loan.
  6. He/she may have gotten the property through a bitter divorce and the loan may have remained with the spouse. In that case, he/she could care less.

Bottom line is, it’s risky for the seller but a great deal for the buyer.