Deed of Trust to Secure Assumption
When a loan is being assumed, in addition to an Assumption Deed, the Seller should require the Buyer to sign a Deed of Trust to Secure Assumption. This document gives the Seller a lien on the property to secure the Buyer’s promise to pay the mortgage.
If the Buyer does not pay the mortgage, the Seller has the right to foreclose the Deed of Trust to Secure Assumption and take the property back.
Common Use of a Deed of Trust to Secure Assumption
A Deed of Trust to Secure Assumption and an Assumption Deed are commonly used in divorce cases where one spouse is awarded the real estate property and agrees to take over the loan.
The Assumption Deed transfers the property and the Deed of Trust to Secure Assumption secures the promise to pay the mortgage. If the spouse who is awarded the property does not pay the mortgage, the other spouse hires an attorney to take the property back.
What is an Assumption Deed
An Assumption Deed is a document used to transfer ownership of real estate property when the new owner assumes an existing mortgage on the property being transferred.
Additionally, the new owner agrees to comply with all provisions of the existing mortgage, including making payments to the mortgage company. The new owner takes over the payment of the mortgage.
When can you use an Assumption Deed
You can use an Assumption Deed if the mortgage company has agreed, in writing, to allow the new owner to assume the payment of the mortgage.
In this context, Assumption means the new owner promises to make all payments on the mortgage and perform all other obligations of the mortgage, including paying the property taxes and insurance.
Good to know: Most mortgages contain a clause called a Due on Sale Clause. This clause prohibits the assumption of the loan without first obtaining permission from the mortgage company.
Note: If the mortgage company DOES NOT agree to the assumption of the loan, do not transfer the property.
If the mortgage company allows the assumption of the loan, the current owner may use an Assumption Deed to transfer the property to the new owner. In exchange, the new owner signs a written promise to pay the mortgage and to comply with all other requirements of the mortgage. This includes the payment of the property taxes and insurance.
Again, you should not use an Assumption Deed unless the mortgage company has approved the assumption of the loan.
Keep in mind, even if the lender is an individual or private company, you should still get permission from the individual lender before the mortgage is assumed.
Good to know: As an example – If you are paying $100,000 for a property and that property has a mortgage with a balance of $75,000, with permission, you can assume the balance of $75,000 and pay the seller the $25,000 difference.
After you receive your Assumption Deed, you take over payments to the mortgage company and pay $25,000 to the seller. However, if you do not make the payments, the mortgage company can take the property from you.
If you have any questions about these documents, call and speak directly with attorney Scott Steinbach at 972-960-1850. There is no fee for your call. Or you may email him directly at email@example.com.