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What is an assumption? Kiritsis Law Group 212 922 0005

May 13, 2021

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Generally, it refers to assertion of personal liability for a repayment through, a take-over of the loan. In many jurisdictions, mortgages are potentially assumable, but lenders often use a variety of ways, in trying to prevent mortgage assumption. A common way, lenders try to prevent mortgage assumptions, is by insertion of due on sale clauses. Jurisdictions which permit assumption, tend to differ on whether for an assumption to be legally binding, it has to be explicitly stated and/or it can be implied by the behavior of the parties. Putting aside an assumption’s legality, there many potential pitfalls when using assumptions, such as:  (1) Special care should be paid on the preparation of the affected tax returns, since a mismatch and/or error may trigger a red flag for an audit (2) Anytime a deed is not recorded, there is always the potential for a smart trial attorney, to make a good argument which casts doubt on the ownership status of the property. (3) If there is a fallout, and the party who assumed the mortgage stops making the payment, then it may be very hard for either of the parties to use the property as a collateral to refinance (banks are not in the habit of lending money on parties, where the ownership and loan status may be in limbo).

 

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