assignment and assumption agreement mortgage

Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

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by   Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

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Updated on: November 24, 2023 · 3 min read

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

• The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
• The assignor must agree to assign their rights and duties under the contract to the assignee.
• The assignee must agree to accept, or "assume," those contractual rights and duties.
• The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

• First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
• All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
• Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

• Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
• The effective date of the assignment and assumption agreement
• Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
• Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
• Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
• A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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• Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

• An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
• Acceptance of the offer. The mortgage borrower agrees to borrow the money.
• Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
• Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

• Bankrate: Assumable Mortgage: Take Over Seller's Loan
• The Law Dictionary: What is Assumption?
• Nolo: What Is an Assignment of Contract?
• U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Understanding Assumption Agreements: A Simple Guide

LegalGPS : May 9, 2024 at 12:46 PM

Have you ever heard of the term "assumption agreement" and wondered what it meant? You're not alone. To understand assumption agreements, we need to delve a bit into the world of contractual law. But don't worry, I promise to make it as simple as possible while still bringing you the essential knowledge you need. Also, we have an assumption agreement template if you need one.

Table of Contents

Detailed understanding of assumption agreement, the purpose of assumption agreement, benefits of using assumption agreements, real-life examples of assumption agreements, faq on assumption agreement, components of an assumption agreement.

• Identify and review the original agreement
• Negotiate terms with the assignee
• Draft the assumption agreement
• Edit and finalize
• Retain a copy

Do you need a lawyer for this?

Definition: An assumption agreement is a kind of legal document that you'll find commonly used in finance and real estate transactions. This type of agreement transfers the obligations of one party under a contract to another party.

Imagine you want to sell your business but have outstanding debts that need to be paid. The buyer of your business agrees to assume those debts and pay them, along with owning the business. This situation is where an assumption agreement comes in; it's there to ensure that everyone knows who's responsible for paying these debts after the transaction takes place.

Usage: We often see assumption agreements during mergers and acquisitions, wherein the buyer will assume certain liabilities of the selling company. Another common scenario is in loan assumption, wherein the obligation of paying a loan is transferred from the initial borrower to a new borrower.

Parties Involved: Typically, an assumption agreement includes two main parties: the assignor (let's say, Seller A) and the assignee (Buyer B). Seller A is looking to transfer their obligations, while Buyer B is ready to assume those obligations.

The purpose of an assumption agreement is to ensure the seller is freed from their obligations, while the buyer agrees to take on these obligations. Legally, the seller could still be held liable if they don't have a proper assumption agreement in place that absolves them of those responsibilities. The agreement provides a clear record that the buyer has taken over the obligations, ensuring that everyone is on the same page.

For example, if the seller is responsible for paying property taxes, they'll want to be sure that's transferred over to the new owner. If it's not, then they could still be held liable for those payments. The same goes for any other obligations such as utilities or insurance premiums.

Much like a sturdy handrail on a steep staircase, an assumption agreement provides fundamental support, helping to avoid slips and falls in the world of contract law.

Benefits for the Assignor: The assignor, having fulfilled their obligations up to the point of the sale, can walk away without having to worry about what happens next. With a legally binding assumption agreement in place, they're unburdened from any obligations in the contract previously held.

Benefits for the Assignee: For the assignee, an assumption agreement clearly states what obligations they're now responsible for. As with any binding agreement, it's important to have all the details in black and white. After all, no one wants to enter a business arrangement based on hearsay.

This is important because assumptions can be legally binding, meaning that if the assignee is not given full disclosure on what their obligations are, they could be held liable for any damages incurred.

For example, if they were to sign a lease on an office space but didn't know that it was also being used as a storage unit for the previous owner's inventory or equipment, they could be held responsible for returning the premises back to its original state when they vacate.

Consider a real estate scenario. Let's say you're buying a house that still has an existing mortgage. Assume you plan to pay the remaining mortgage rather than obtaining a new mortgage. An assumption agreement can transfer the responsibility of the mortgage from the seller to you, the buyer. The seller can walk away from the mortgage, and you can continue making payments on the existing mortgage.

Another example, let's say a business is sold, and the new owner takes responsibility for the lease on the building. The lease assumption agreement details the new obligations of the new owner and ensures the original owner is no longer responsible for the lease.

Lastly, an assumption agreement can be used for a joint venture, in which two or more parties are working together to create something. This type of agreement details how the business will be run and what each party's responsibilities will be.

Q: Are assumption agreements legally binding?

Yes, assumption agreements are legally binding. Like any other contract, it sets out the terms and conditions of the agreement that the assignor and the assignee have mutually agreed upon.

Q: What happens if the assignee is unable to fulfill the obligations listed in the assumption agreement?

The remedies will depend on the stipulations of the agreement. The assignor might legally be able to retrieve their transferred right/obligation if the assignee fails to perform their contractual duty.

Q: What happens if the assignee does not fulfill the obligations listed in the assumption agreement?

When you're preparing an assumption agreement, it's essential to include specific elements to ensure its legality and enforceability. Here are some of the key components to include in an assumption agreement:

Identification of parties: Clearly outline the legal names and contact information of the assignor and the assignee to avoid any confusion or misunderstandings.

Description of the original agreement: Provide a brief description of the initial agreement, including its date, purpose, and any relevant reference numbers or identification codes. In many cases, attaching a copy of the original agreement as an exhibit is helpful.

• List of obligations: Clearly identify and list all obligations being transferred from the assignor to the assignee in the assumption agreement. This helps to ensure clarity and accountability for both parties.
• Effective date: State when the obligations will officially transfer from the assignor to the assignee and when the agreement comes into effect.
• Full assumption: Include a clause stating that the assignee assumes all obligations and liabilities and that the assignor is released from these responsibilities once the agreement comes into effect.
• Representations and warranties: This section should include any necessary representations or warranties from both the assignor and assignee. This might cover the current status of the obligations, the absence of any outstanding disputes, and confirmation that all necessary approvals have been obtained.
• Notices: Outline how and where any notices or official communications related to the agreement should be delivered, specifying any necessary mailing addresses or email addresses.
• Governing law: Clearly state which jurisdiction's laws will apply to the agreement. This ensures there's a clear legal framework if any disputes arise later.
• Signatures: Finally, make sure both the assignor and the assignee sign and date the agreement. This brings the contract into effect and makes it legally binding.

Preparing Your Assumption Agreement

If you're planning to create an assumption agreement, following these steps can help you prepare a well-crafted, legally sound document:

Identify and review the original agreement: To prepare an accurate assumption agreement, you'll first need to identify the initial agreement you intend to assume. Review it thoroughly to identify any clauses or inconspicuous details that may affect the assumption. Take note of any laws that apply to the original agreement and whether they will be carried over into the assumption. For example, if the initial contract was made in another state, you'll need to consider how this affects your ability to assume it. If there are specific laws regarding assumption agreements in your state, make sure you're familiar with them before proceeding.

Negotiate terms with the assignee: Just as with any other agreement, both parties' interests should be safeguarded through negotiation. Discuss any concerns or demands with potential assignees before finalizing the components of your assumption agreement. This is important because assumption agreements are legally binding contracts, so you'll want to ensure that all of your needs are met. In some cases, the assignee may not be willing to accept certain terms and conditions; if this is the case, it's best to walk away from the deal rather than proceeding without agreement.

Draft the assumption agreement: Using the guidance outlined above, prepare a first draft of the agreement. Double-check all the details and include both the assignor's and the assignee's input. This might look like the following:

Edit and finalize: Make any necessary revisions and proofread the agreement to ensure clarity and accuracy. Once both parties are satisfied with the terms, sign and date the document. If you don't do this before having the document notarized, then you'll need to get the signatures witnessed by a notary public. The notary will verify your identity and ensure that both parties are signing of their own free will.

Retain a copy: It's essential to keep a copy of the executed assumption agreement in a secure location, preferably both in physical and digital formats. This will serve as a reference in case of any future disputes or clarifications.

In navigating legal processes and transactions, knowledge is your best tool. Understanding how assumption agreements work can open up new strategies and protections for yourself and your business.

Of course, drafting an assumption agreement should be done with careful attention to detail and preferably, with the assistance of legal professionals. If you're looking for a pre-made template crafted by expert legal practitioners, look no further. We provide an easy-to-use, comprehensive Assumption Agreement template at an affordable price. Navigate confidently in the business world supported by our professional legal templates. Click here to get started!

The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes ( especially if you have multiple owners ). But often for single-owner businesses, you don't   need a lawyer to start your business .

Many business owners instead use tools like  Legal GPS for Business , which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.

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Debt Assignment and Assumption Agreement

Rating: 4.7 - 23 votes

A Debt Assignment and Assumption Agreement is a very simple document whereby one party assigns their debt to another party, and the other party agrees to take that debt on. The party that is assigning the debt is the original debtor; they are called the assignor. The party that is assuming the debt is the new debtor; they are called the assignee.

The debt is owed to a creditor.

This document is different than a Debt Settlement Agreement , because there, the original debtor has paid back all of the debt and is now free and clear. Here, the debt still stands, but it will just be owed to the creditor by another party.

This is also different than a Debt Acknowledgment Form , because there, the original debtor is simply signing a document acknowledging their debt.

How to use this document

This document is extremely short and to-the-point. It contains just the identities of the parties, the terms of the debt, the debt amount, and the signatures. It is auto-populated with some important contract terms to make this a complete agreement.

When this document is filled out, it should be printed, signed by the assignor and the creditor, and then signed by the assignee in front of a notary. It is important to have the assignee's signature notarized, because that is the party that is taking on the debt.

Applicable law

Debt Assignment and Assumption Agreements are generally covered by the state law where the debt was originally incurred.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

Other names for the document:

Agreement to Assign Debt, Agreement to Assume Debt, Assignment and Assumption of Debt, Assumption and Assignment of Debt Agreement, Debt Assignment Agreement

Country: United States

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Assignment And Assumption Agreement

Jump to section, what is an assignment and assumption agreement.

An assignment and assumption agreement transfers one party's rights and obligations to a third party. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

The assignor assigns their rights and duties under the contract to the assignee and the assignee accepts, or "assumes," those rights and duties.

The other party to the initial contract must also consent to the transfer of rights and obligations to the assignee. For a valid assignment and assumption agreement, the initial contract must provide for the possibility of assignment by one of the initial contracting parties.

Common Sections in Assignment And Assumption Agreements

Below is a list of common sections included in Assignment And Assumption Agreements. These sections are linked to the below sample agreement for you to explore.

Assignment And Assumption Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-99.D.13 3 d416323dex99d13.htm ASSIGNMENT AND ASSUMPTION AGREEMENT , Viewed October 6, 2021, View Source on SEC .

Who Helps With Assignment And Assumption Agreements?

Lawyers with backgrounds working on assignment and assumption agreements work with clients to help. Do you need help with an assignment and assumption agreement?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate assignment and assumption agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!

I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.

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Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

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Assignment and Assumption Agreement | Practical Law

Assignment and Assumption Agreement

Practical law standard document 0-381-9984  (approx. 10 pages).

• Mortgage Basics

How a Mortgage Assumption Agreement Works and How to Get One

Think back to the last time you made an assumption. Maybe it was at work with your boss or at home with your spouse. In any case, you assumed something to be true rather than seek clarification.

You can find yourself in quite a predicament when you assume. But when we’re discussing home loans, an assumption turns out to be a positive thing. Let’s dive into the ins and outs of a mortgage assumption agreement. 

What is a mortgage assumption agreement?

It’s actually pretty self-explanatory. A person who assumes a mortgage takes over a payment from the previous homeowner. Basically, the agreement shifts the financial responsibility of the loan to a different borrower.

Consider the following scenario. You’re interested in buying a home yet want to avoid obtaining an entirely new loan. As long as you understand that you’ll be on the hook for someone else’s debt, a mortgage assumption agreement could be a viable option.

Now for the follow-up question: Why would you decide to assume a home loan instead of getting your own mortgage?

It really depends on the situation. If rates are unfavorable for buyers and the current homeowner has a significantly better rate, then it makes sense to explore a mortgage assumption. Just know that only certain loans are assumable and that you will need to learn about restrictions. 

How long does it take?

By no means is mortgage assumption an easy process. You’ll be asked to provide extensive documentation, much like you would when securing financing the traditional way. That’s why it’s important to have copies of pay stubs and W-2’s ready ahead of time.

Keep in mind that the average loan assumption takes anywhere from 45-90 days to complete. The more issues there are with underwriting, the longer you’ll have to wait to finalize your agreement. Do yourself a favor and get the necessary criteria organized in advance. 

How to assume a mortgage from a family member

Say one of your family members plans to move into a larger house in the near future. Knowing you’re in the market for your own place, they ask you about assuming their mortgage. Here’s what you should do before accepting their offer.

Confirm the type of mortgage they have

As we mentioned earlier, not all home loans are assumable. The good news is that conventional and government-backed loans, such as FHA, VA, and USDA, allow for transfers between borrowers. Other mortgages require the seller to pay off the loan when they hand over the property.

Have enough saved for a down payment

While you may not have to worry about closing costs with a mortgage assumption, you’ll still have to come up with a down payment. These funds essentially pay off the original borrower’s equity. So if the seller previously took out a $300,000 loan and has since paid it down to $250,000, you would pay them $50,000 in cash for their equity.

See if you benefit from a refinance

Not exactly thrilled with the terms of your family member’s loan? You could refinance and enjoy significant savings if you have your credit in order . What’s more, today’s mortgage rates are some of the lowest we’ve ever seen. 

Does it hurt your credit?

We should mention that the seller’s payment and credit history have no impact on this transaction. That said, be prepared for a lender to check your credit score and employment status. Doing so helps them determine if you are, in fact, able to assume the mortgage. 

Pros and cons

Not all aspiring homeowners should opt for a mortgage assumption. Be sure to familiarize yourself with the advantages and disadvantages before making a decision.

Possible lower rate - A lower interest rate could save you hundreds of dollars a month or more. It’s why many hopeful buyers jump at the chance to assume a loan that was originated in a low-rate environment.

Pay less in closing costs - We touched on this earlier. Since you won’t need a lender to generate a new loan, you won’t have to worry about typical underwriting fees.

Smaller mortgage amount - Not sure you can stomach a 30-year mortgage but don’t earn enough income to manage a 15-year mortgage ? You’ll likely find yourself somewhere in between when you take on another person’s loan. This potentially translates to fewer payments and less of your hard-earned money going toward interest.

Higher down payment - This is the biggest drawback when entering into a mortgage assumption agreement. With home prices continuing to rise, equity amounts are at all-time highs. Unless you have a sizable savings account, your best bet may be to research down payment assistance programs for your own home loan .

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What Is Mortgage Assignment vs. Mortgage Assumption?

Mortgage assumption is now rare, while mortgage assignment is quite common.

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More Articles

•   1. How to Invest in Property With No Money Down
•   2. What Does It Mean When a Mortgage Matures?
•   3. How to Assume a Promissory Note

Mortgage assignment, usually involving a mortgage lender, is very different from mortgage assumption, involving a homebuyer. Mortgage assignments occur when the original lender transfers the mortgage loan to a third party. Lenders who sell mortgages, which is most of them, assign their mortgages to others, who become the owners of the loans. Mortgage assumption occurs when a homebuyer assumes the home seller's existing loan, making all future payments. Buyers become the new mortgage borrowers.

Due on Sale Clauses

Most contemporary mortgages include due on sale clauses. This means that if a transfer of ownership occurs in the form of a home sale, the current mortgage must be paid off, as the balance becomes due. Due on sale language eliminates the option for a buyer to assume the mortgage on the home she's buying. Due on sale clauses have little effect on mortgage assignments to buyers or other third parties. Due on sale language helps make mortgage assignments easier, as the loan buyer knows the mortgage will be paid off when the property is sold.

Government Loans

While most mortgage loans are sold and assigned to others, few mortgages are assumable. Federal Housing Administration and Veterans Administration mortgages, commonly called government loans, are the only legally assumable home loans left in the mortgage market. Government loans also may be assigned to third party buyers, as other mortgage loans are. Assuming government loans is not automatic, as the homebuyers must qualify for these mortgages, meeting FHA and VA income and credit guidelines.

Third Parties

While most contemporary mortgage assignments involve lenders selling their loans, borrowers may assign their mortgages, if their loan note language permits, to third parties. Although this is technically a form of mortgage assumption, it differs from traditional legal assumption in that the original borrower who assigned the mortgage remains responsible for the loan balance if the assignee does not make scheduled monthly payments. While both mortgage assignment and assumption involve third parties, the position of mortgage loan buyers and mortgage assignees is legally different.

While rare, novation is more of a hybrid of mortgage assumption and mortgage assignment. When permitted, the mortgage loan is both assumed by and assigned to another borrower. However, the original borrower is no longer responsible for monthly payments or personally liable for the balance of the loan. Legally, novation equals a new obligation, but with the same terms, including interest rate, of the former mortgage loan. Few contemporary mortgage loan notes permit this form of assumption and assignment.

Significance

Until the 1970s, mortgage assumptions were common, while mortgage assignments were rare. After the federal government created mortgage companies Fannie Mae and Freddie Mac and after due on sale clauses became popular, the roles reversed. For the past four decades, few mortgage loans were assumable, while most mortgage loans were sold and assigned to third parties. The contemporary practices benefit lenders but do not help borrowers, particularly when interest rates rise. Lenders reduce their rate risk, shifting most of the risk to mortgage borrowers, since homebuyers cannot assume lower interest rate mortgage loans.

• Financial Web: Understanding Assumptions
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How to invest in property with no money down, what does it mean when a mortgage matures, how to assume a promissory note, does it make a difference who is the buyer or co-buyer for financing, what is a subordinate clause in a mortgage, do mortgage borrowers have to be on the title deed, what is an assignment of trust deed, what is a loan maturity date for a mortgage, what is the difference between the deed of absolute sale and the deed of assignment, the disadvantages of owner-carried mortgages, refinance vs. restructure mortgage, warranty deed vs. deed of trust.

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Elektrostal , Moscow Oblast, Russia