A case of Mistaken Identity: Assumption vs. Subject To Mortgage
Both involve the sale of a property without paying off the underlying mortgage. With an assumption, the buyer agrees to become personally liable for any deficiency judgment upon default; subject to means the seller remains primarily liable for the note and the mortgage.
Assumption of mortgage — The acts of acquiring title to property that has an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments. In effect, the buyer (grantee) becomes the principal guarantor on the mortgage note and is primarily liable for the amount of any deficiency judgment resulting from a default and foreclosure on the property. The original mortgagor (grantor) is still liable as surety on the note if the grantee defaults. The personal liability of the purchaser to pay the mortgage debt is usually created by an assumption clause in the deed (or assignment of lease if a leasehold mortgage is involved). Normally a deed need be signed only by the grantor, but where there is an assumption clause both buyer and seller sign the deed so that the buyer becomes personally bound to the assumption. Because of the seller’s continued liability, he or she usually asks a higher price for the property if the buyer is to assume a mortgage-the seller is, in effect, trading on the low interest rate of the existing mortgage. The lender is, in effect, a third-party beneficiary of the assumption agreement.
Subject to mortgage — A grantee taking title to a real property “subject to” a mortgage is not personally liable to the mortgagee for payment of the mortgage note. In the event that the grantor/mortgagor defaults in paying the note, the grantee could lose the property, however, and thus his or her equity, in a foreclosure sale.