If the seller's existing mortgage does not contain
an alienation clause (due on sale clause), it is assumable.
The buyer can simply agree to take over payment of the
seller's debt with terms of the note unchanged. The property still
serves as the basic security for the loan, but the buyer becomes
primarily liable for repayment of the debt. If there is a
foreclosure and proceeds are insufficient to satisfy the debt, the
lender may sue the buyer for the deficiency.
An assumption is an agreement strictly between
the buyer and seller. The buyer assumes liability for the loan, but
the seller is not completely release from responsibility; he or she
remains secondarily liable. If the lender cannot recover the loan
amount from the buyer, or through foreclosure, it may still sue the
seller for the deficiency.
In order for the seller to be relieved form this
responsibility, he or she must obtain a release form from the
lender. In this instance, the lender agrees to accept the buyer as
the new mortgagor and to release the seller from all obligations on
the mortgage. The lender will normally charge a loan assumption fee
on assumable loans, renegotiate the loan assumption fee or
renegotiate the interest rate if the mortgage contains alienation
clause.
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