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When mortgaged property is conveyed to another person, an assumption agreement may be used which provides that the new owner assumes the mortgage and the mortgage holder agrees to the assumption.
Assumption is an undertaking by a person to repay an obligation or a loan owed by another entity or person. When a person assumes a loan s/he agrees to adopt the loan and undertakes to become personally liable for repayment if there is a default of the loan. Different types of loan assumption agreement forms are available on the US Legal Forms website.
A lease assumption is an undertaking by a person to take over a lease from the original tenant. Lease assumptions are used to transfer lease obligations when one tenant wants to get out of a lease. By entering into lease assumption agreements, one tenant replaces another. A lease assumption agreement is a legal agreement in which a person or an entity assumes responsibilities of the tenant and takes over payments and obligations in an existing lease between a tenant and landlord. By signing and executing an agreement for assumption of lease, a tenant transfers the lease to a third party, along with rights and obligations attached with it. Through lease assumption, a tenant is legally released and can get out of a lease.
Mortgage assumption is the transfer of a mortgage from a seller to a purchaser of a real property. An assumable loan or an assumable mortgage is a mortgage that permits a real estate purchaser to undertake the seller's existing mortgage. By assuming a mortgage, a buyer agrees to adopt the mortgage and to take over payments and other obligations associated with the mortgage. A mortgage assumption agreement is a contract between a purchaser of a real property and a seller in which the purchaser gets to take over mortgage payments and obligations of an existing mortgage. Through an assumption agreement, a mortgage property is transferred to another person.
A mortgage loan assumption will be completed only if a mortgage lender accepts the transfer of assumption mortgage debt. If the lender declines to release the seller, the seller remains liable to the mortgage lender even after the mortgage assumption process.
There are mainly two methods of mortgage assumption:
In a qualifying assumption, a borrower has to obtain permission from the lender before loan assumption in order to assume mortgage. The new borrower has to provide credit and income details. The lender has to provide an annual percentage rate (APR rate) of the assumable mortgage loans. APR rates are the rate of annual cost of credit. In a non qualifying home loans assumption, the new borrower pays to the seller only the difference between the equity in the property and the seller will fund the balance amount.
Sometimes mortgage assumptions are created to save higher rates of interest or closing costs. This type of mortgage assumption is called simple assumption of a mortgage. The Federal Housing Administration partially or fully insures mortgages or loans and such mortgages are called FHA assumable mortgages. In a divorce proceeding, divorce mortgage assumption is a good option for spouses to secure release from mortgage liability.