taking over someone's mortgage?

Question

A co-worker of mine told me that she took over her aunt's mortgage when she bought her condo from her a few years ago. I can see how this would benefit the buyer, in the sense that you're taking over the seller's good credit, and getting the place for what is left on their mortgage. My co-worker for example said that her aunt had lived there for 10 years, so when she took over the mortgage, those payments her aunt paid came with it. I also assume she got the place for the price her aunt paid 10 years prior. I can see how that benefits the buyer, but what does the seller get out of it??? Just curious what incentive my co-worker's aunt had to do this (other than the fact that they are related). Can someone please explain to me how this works? Thanks.

Answer 1

Called an assumption. Some mortgages allow them; most don't. What terms and payments will be outstanding depend on the borrowers and institution involved

Answer 2

Some mortgages are assumable, meaning the mortgage can be passed from one person to the next provided the second person has good credit and the lender approves them. Unless the buyer pays the seller some cash in addition to taking over the mortgage then there isn't necessarily any advantage for the seller, other than maybe a quick sale. If your co-worker didn't assume the mortgage then that means the mortgage is still in the aunt's name and the co-worker is just making the payments. If this is the case then it doesn't help your co-workers credit at all and it could hurt her aunt's credit if she defaults.

Answer 3

Not many mortgages are assumable any more. Most likely, your friend took over her Aunt's mortgage "Subject To" the existing financing. She gets a nice place without the credit hassles and approval processes of a bank...her Aunt gets to go somewhere that's easier to take care and still retains the benefits of ownership...like tax deductions, etc...

If it was assumed...then all is well. HOWEVER, if it was taken "Subject To", and the bank realizes that the payments are being made by a person other than the one on the original paperwork...they have the legal right to activate the "due on sale" clause in the contract. This means, the bank considers this a sale and will call the loan due. Your friend will have about 45-60 days to come up with money (cash or loan) to get this in her name.

If the interest rate is higher than what is on the books today...they may not call it. If the payments are made on time...they may not call it...however they do have the right to.

Answer 4

'Taking over a mortgage' generally means that the original mortgage had a clause in it allowing another person to 'assume the mortgage', at the same interest rate and conditions which applied to the original borrower. If "Auntie" did not ask for additional money to cover the difference between the mortgage balance and the current value of the property, your friend got a lovely gift.

If your friend just took over the payments without a legal assumption of the mortgage, she made a grievous error. When the mortgage liability remains in "Auntie's name", your friend LOSES any right to deduct the interest paid from her income tax return, since she is not legally obligated to make those payments. Furthermore, if "Auntie" dies and no change in ownership is recorded, the condo becomes an asset of "Auntie's estate".

With the assumption that your friend legally 'assumed' the mortgage, she did not get to ride on her aunt's good credit, since the lender requires proof of creditworthiness before it will allow another person to assume the liability. You might want to check with your friend to see if she has done this legally and upfront. If she has not done so, she could be in for a real mess.