Page 12 - Boca Club News - February '21

Page 12, Boca Club News
Legal: Mortgage Assumptions

By Michael J Posner Michael, Esq., mortgage to obtain the lender’s consent to the assumption. mortgage assumptions as part of the bulk loan sale to private
a partner in Ward, Damon, Posner, In most of these cases, the new buyer must apply to the investors.
Pheterson & Bleau, P.L. a mid-sized lender and be approved in the same manner as if the buyer If a mortgage specifically states that it is not assumable
real estate and business-oriented law were obtaining a new loan. If the lender is willing to consent even with consent of the lender, the loan may still be
firm serving all of South Florida, to the assumption, the buyer is then required to execute a assumed because the lender can modify that provision at any
with three offices in Palm Beach loan assumption agreement making them personally liable time after the mortgage is executed. In many commercial
County. They specialize in real for the promissory note in the same manner as the original transactions, the mortgage states that it is not assumable,
estate law and can assist sellers and borrower. or that it is only assumable with consent which may be
purchaser with closing and financing In these circumstances, some lenders will release the unreasonably withheld, but many lenders will still allow
of residential and commercial real estate including remote original borrower from liability on the note, but in many assumption in certain limited circumstances, such as when
closings. They can be reached at (561) 594-1452 or at cases the lender conditions the assumption on the borrower there is a financially week borrower and a more financially
mjposner@warddamon.com. remaining liable. In the event of a future default, the lender secure buyer.
Traditionally, a real estate mortgage, which is a security then is able to sue both the new buyer, who assumed the If a buyer acquires a property subject to an existing
instrument for a promissory note pledging real property loan, as well as the original borrower, and should there be a mortgage that contains a Due on Sale clause, the lender
as collateral for the note, was freely assumable by any deficiency on the amount due on the loan after foreclosure has the right, but not the obligation, to call the loan and
subsequent purchaser of the secured real property. The buyer sale of the property a monetary judgment will be entered immediately commence foreclosure action. Even if the
acquired the real property subject to the existing mortgage, personally against both the new buyer and the original lender initially accepts payments from the new buyer, the
and if the new buyer failed to make the mortgage payments borrower. FNMA mortgage states: “lender’s acceptance of payments…
when due the lender had the right to pursue a foreclosure The most common mortgage used today is the Federal shall not be a waiver of or preclude the exercise of any right
action against that property with monetary recourse against National Mortgage Association’s Form 3010. Its specifically or remedy.”
the original borrower, but not against the new buyer so as to provides the following: Some borrowers try to get around the Due on Sale
foreclose the real estate and sell same at auction to recover If all or any part of the Property or any Interest in clause by using instruments such as a contract for deed or
the money due on the note. the Property is sold or transferred (or if Borrower is not installment sales contract. However, a well drafted Due on
However, today, most mortgages are not assumable. a natural person and a beneficial interest in Borrower Sale clause would prohibit these type conveyances even
They generally fall into two distinct classes: mortgages is sold or transferred) without Lender’s prior written though they are disguised as long-term leases with the
that are assumable with consent, and mortgages that are not consent, Lender may require immediate payment in full of conveyance occurring at the end of the lease term.
assumable. These mortgages all contain a provision called all sums secured by this Security Instrument. However, this Another method used is the wrap mortgage, which is a
a “due on sale clause.” Mortgages that are assumable with option shall not be exercised by Lender if such exercise is mortgage from the borrower to the new buyer that is larger
consent require the buyer of any property secured by the prohibited by Applicable Law. than the existing loan. The new buyer then makes payments
Therefore, this mortgage is assumable with either the on the wrap mortgage directly to the original borrower, who
lender’s consent or if permitted by applicable law. For continues to make the monthly payments on the original
Advertise, example, a title transfer from an individual borrower to the loan. By continuing to make the payments, the view is
borrower’s wholly owned revocable trust is an exception
that the lender will not realize that the property has been
under applicable law to the requirement of lender consent. transferred; but most lenders will eventually discover the
Check out our website! There are many limited, but permitted, exceptions and a transfer when they receive updated tax bills showing the
full explanation can be found at tinyurl.com/y6m78k32.
new buyer’s name.
In addition, unless the mortgage specifically states Mortgage loan assumptions without consent can be done
www.seabreezepublications.com otherwise, the lender is not obligated to grant consent to a as long as the buyer understands the risks, including the
mortgage assumption, and in most cases lenders will not obligation to refinance the mortgage at potentially higher
or call 746-3244. grant mortgage assumptions–partly because of the fees they rates should the lender exercise its Due on Sale clause.
received from new loans and partly because most lenders
Proper understanding of the risks and benefits should
are only servicers of their loans and the loans themselves be made before purchasing a property with an existing
are part of packaged securities that have restrictions on mortgage without the lender’s consent.

BRIAN STENBERG

Common-Sense Leadership for Boca Raton

a20-year resident of Boca Raton

aLocal businessman for 24 years
aBoca Square Civic Association, President
aFederation of Boca Raton
Homeowner Associations, Board Member

aRotary Boca Raton Sunset, Treasurer
aBoca Raton Citizens Police Academy, Graduate
“ PRIORITIES

For me, it’s not about who gets
aCOVID-19 response and recovery
the credit; it’s about getting the
job done for Boca Raton. We have
to get back to basics and ensure
aManaging growth smartly
local government is focusing on aSupporting our local businesses and economy
our priorities with collaboration and aEnsuring world-class city services
common-sense solutions. aPrioritizing infrastructure improvements
-Brian Stenberg “ aSafe neighborhoods and streets

aProperly managing our city finances
aKeeping taxes low

www.BrianStenberg.com

Vote Brian Stenberg for City Council, Seat D

Tuesday, March 9th
Paid by Brian Stenberg for City Council