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Assumption of Mortgage
Practical Law Glossary Item 7-503-8240 (Approx. 3 pages)
Glossary
Assumption of Mortgage
An arrangement where the purchaser, or grantee, obtains title to real property and assumes the seller's liability for payment of an existing note secured by a mortgage that encumbers the real property at the time title is transferred.
The most common reasons why a purchaser wants to assume the seller's mortgage include:
- The then current mortgage interest rates are not as favorable as the seller's mortgage loan interest rate.
- The purchaser can avoid or minimize local mortgage recording taxes by assuming the seller's existing mortgage.
If the existing mortgage documents permit assumption, they will often include several conditions that must first be satisfied such as:
- Payment of lender fees and expenses.
- Satisfaction of property financial covenants and confirmation of the purchaser's financial condition.
- Substitute guarantors acceptable to the lender.
- Execution of assumption documents and delivery of legal opinions.
- Satisfactory completion of the lender's know your customer, Patriot Act, and other compliance searches.
- Delivery of title policy endorsements.
- Approval of any replacement property manager.
For additional information on loan assumptions, see Practice Note, Purchaser Due Diligence in Commercial Real Estate Acquisitions.