February 4, 2011

A seriously well liked methodology for selling a property quickly is to sell the property “Subject-To” the present financing. This is a change of owner financing whereby in the exchange the seller makes an assignment of motgage debt to the purchaser and also deeds the property to that buyer. The buyer then begins making the payments on the loan either thru a note servicing company or right to the lender themselves. Once the transaction closes the vendor is no longer involved with the property. This kind of exchange is similar to a mortgage assumption ; but technically, it’s not a presumption, 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 downside 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 then affect the seller’s credit. If you selling a property this way, you’ll need to do your due groundwork on the purchaser to make certain they have strong fiscal certifications.