The Difference between Assumption Loans and Subject to Loans

Loans have entailments which make them either "Assumptive," or "Subject To." Fortunately, their differences are distinguishable - you can easily tell them apart.  To further your knowledge, below is an overview of their definitional differences and how they impact the entire escrow process.

Assumption Loans

The word "assumption" is employed when a buyer becomes personally liable for an existing trust deed. If he/she were to default on their ulterior mortgage payments, the seller would be freed of obligation as the buyer has "assumed" the loan.

Assuming a loan should be with the lender's knowledge and approval. An assumption agreement is devised by the current lender of record and signed by the buyer as to comply with the escrow process. The seller may also be asked to sign the said agreement and the terms may clear the seller from duty. The lender typically calls for a credit history from the buyer prior to the approval of the assumption and the defrayal of assumption fee(s). If the loan is delinquent, it will be brought current and interest is going to be pro-rated through escrow and charged the seller.

Subject To Loans

As opposed to an Assumption Loan, "taking subject to" means the buyer received no liability to pay back the loan; it remains in the seller's name, but the buyer obtains the deed - hence, the buyer controls the property. While the buyer is responsible for mortgage payments, the seller maintains the responsibility for the loan.

When a buyer acquires title to the property, "Subject To" the loan of record, the lender is not asked for approval, nor notified of the transaction.  The lender has not agreed on the title transfer - hence, the seller is not completely freed from duties; the buyer's responsibility is merely making payments rather than the seller. The seller is the one to provide escrow with their most recent payment record which will be employed to figure the exact amount of the principal balance at close of escrow. When and if the lender obtains notification of transfer of ownership, they may have the right to accelerate their due date.

To ensure real estate transactions are fair and square for both parties, always call for the service of impartial and capable escrow companies. If you’re in California, finding the right California escrow service is never going to be a problem.