Assuming A Mortgage Under Foreclosure

Added March 24, 2007 by Ilyce R. Glink

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Summary: Should you use a website service to find property listings to assume the mortgage. There is a difference between assuming a mortgage, and buying a house "subject to" the existing mortgage. Lenders' activity is changing in the current real estate market and assuming a mortgage could involve different conditions.

While most folks send questions to me through the website, others comment on stories that have run in the past. Here's a selection of recent items from my mailbox.

Q: I would just like to comment on your response to the woman who asked about the website that charged to browse their listings, and offer to put her in touch with homeowners on the brink of foreclosure, and who wanted to walk away from the situation.

She was supposed to be able to step in and take over their mortgage payment.

You were correct in telling her that this is legal. However, in my opinion you were a little off the mark when you said "As for taking over another person's mortgage payment, that is often more difficult that it seems. In general, only FHA loans are assumable, provided that you can qualify for it, and there may be fees you'll have to pay."

There is a difference between assuming a mortgage, and buying a house "subject to" the existing mortgage. The second option allows you to get title to a house and take over making the payments without putting your name on the mortgage. This is legal, although a homeowner runs the risk of the lender choosing to exercise the "Due on Sale" clause if they learn of the transfer of title.

However, this risk may be small for someone who is taking a bank's non-performing loan and bringing it current.

A: Thanks for your comment. You are correct that buying a house subject to an existing mortgage means the buyer takes the risk that the lender will pull the loan. At that time, the buyer would have to do a quick refinance of the property.

Given that lenders are extremely nervous about the market, the ability of a growing number of borrowers' ability to repay these loans, and their concerns about the growing number of late pays and foreclosures, I'd think some lenders might jump on any opportunity to call a loan and force the borrower to repay the debt.

I'm getting a fair number of letters from readers asking about due on sale clauses. I'd welcome hearing from lenders who make these decisions and will publish future responses.

Published: Mar 24, 2007

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