Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
The biggest newspaper in Phila - The Inquirer - recently ran a story from a reporter who was having issues 14 years after he agreed to allow a buyer to acquire his property by a "simple assumption" of the mortgage; sounds to me like a "Subject To" transaction.
make sure you don't buy from a reporter who can obviously mis-state facts.
Also, disclose. I have a acknowledgment form I have them sign stating that they are aware that I am NOT assuming their loan and the loan stays in their name until I either resell it or refinance at a later date blah blah blah.
The link to the old "bulletins" area is broken due to the BP restructuring of how news is delivered. Here is a link to the article I mentioned above (from another newspaper, but same article):
From the sound of the article this may have been an assumable mortgage (no due on sale clause). The seller (the reporter) should have notified the lender. This would be what the reporter called a "full" assumption. Instead, the reporter did, basically, a sale 'Subject To' an assumable mortgage. This is what the reporter called a "simple" assumption.
In my case (a "simple" assumption) in 1987, the assumption agreement had the original owner on the hook after the sale. "No sale... shall operate to release, discharge, modify or, change, or affect the original liability of the party of the first part..." I was not the original borrower. I believe the original borrower could have been off the hook if he just notified the lender (who would modify the lien) and transferred that liability to me.
Here is a sample MODFN & ASSUMPTN document (not mine, since mine was a "simple" assumption) with "LENDER CONSENT AND RELEASE" clause (#5).
Too bad for the reporter... but sounds like the bank 'did the right thing'.
That story is typical of a consumer not understanding the contract he entered into. There was no "assumption" and his bank was not party to the agreement he made with the buyer. He sold his property subject-to his mortgage, and that buyer also sold it subject-to the same mortgage.
While sub2 always has risks on the seller side, there were things that he could have done had he gotten legal advice on the purchase agreement or understood how mortgages work. Had he gotten legal advice, he would have been advised about the risks and consequences of non-payment and about the DOS clause and might have decided against selling subject-to. He could have talked to his lender who would have probably have told him they don't allow assumptions and that he'll be responsible for the mortgage regardless of deeding away the property.
The reporter lucked out in getting GMAC to back off. If they told him they will no longer pursue him and continue to uphold that agreement, the lender has no remedy that I can think of to recover the collateral. They can't foreclose without naming a borrower and it doesn't appear they asked him for a DIL, as both would affect his credit. All they can do is release the lien.
Seems to me the reporter lucked out, the second sale was the kicker, the title company should never have allowed insured title to pass, even with a special warranty, with a current lien existing as sold subject to to the first buyer, as that buyer was not a party to the original security agreement, his "assumption" required it to be cleared before passing title or have it agreed to by the original seller. I bet the title company simply missed it. GMAC can take it to the insured title coverage or insured closing agent just as easily as to foreclosure squashing the past sale for the loss and ending up with ORE. GMAC could also look to any real estate broker involved with E&O coverage. LOL, they may have been the title insurance/agent too. Such scew ups are also covered by servicing agreements, but they were probably servicing thier own or by an affiliate. This is a good example of why lenders don't like to allow assumptions as they can lose or limit thier security interests through future transfers, unknown to them. If that reporter was advised by an agent originally, there is another issue with the credit issues as damages with a claim against that agent/broker, assumptions arrangements will remain a liability until that obligation is paid off. What a mess!