James D. Lynch
ASSUMPTION OF THE MORTGAGE vs. SUBJECT TO THE MORTGAGE
A homeowner may transfer property to someone else by sale, by gift, or by will. If the home has a mortgage, is the transferee liable for that mortgage? This depends on whether the transferee “assumes” the mortgage or the transferee takes the property “subject to” the mortgage.
If the transferee takes the property subject to the mortgage, the transferee is NOT personally liable for the mortgage. The original transferor remains personally liable, even if the transferee is now making the mortgage payments. Of course, if the transferee stops making the mortgage payments and defaults, the lender can foreclose and the transferee loses the house. But the lender cannot take legal action directly against the transferee.
If the transferee assumes the mortgage, the transferee and the original transferor are both personally liable for the mortgage. If the mortgage payments stop, the lender can foreclose and sell the property, and if the proceeds from the sale are not enough to cover the amount of the mortgage, the lender may take legal action against either the transferee or the original transferor. Generally, the original transferor cannot escape liability unless the transferor, transferee, and lender all agree to completely release the transferor from liability (this is known as a “novation”).