Subject To vs. Loan Assumption?

4 Replies

I'm trying to help a friend walk through this and I have a good grasp of subject to but I'm assuming loan assumption is totally different. Any clarification on this one guys?

Loan assumptions are when the lender allows a new borrower to step into the original borrower's shoes and take over payments on the balance of the original loan. There is usually a qualifying process, just like applying for a new loan, because the lender is agreeing to extend credit to a new borrower.

Many loans are not assumable.

If you are a marginal buyer assuming a loan the lender might not approve you at all or only if the current borrower stays on the hook for full recourse or a personal guarantee.

This will sometimes kill the loan assumption and stop everything cold in it's tracks. It depends on who the lender is being a private party or an institution etc.

If the original seller can negotiate a step down with the lender on having to stay on as guarantor for recourse or personal guarantee then they might go for it. For example original seller only agrees to remain a guarantor for the first 2 years after assumption or they agree to a reduced percentage of responsibility if a default occurs as the years go on down to zero eventually from the start of the loan assumption.

It's even better if the original borrower states options available to them if the default occurs from loan assumption buyer that are in their favor. Not limited to those options but including them. Everything is negotiable and all that can be said is Yes, No, or how about this instead.

No legal advice.

Ashcroft Capital
A national multifamily investment firm
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thanks @Account Closed and Joel Owens! I see what you guys are saying. So they are two totally different things. I believe she was trying to assume a loan and the bank wouldn't do it. I thought a subject to would be better because I think banks want to keep the original seller on the hook just incase.

The seller supposedly mentioned something about the bank giving them money somehow out of this loan assumption. Ever heard of this?