“Subject to a mortgage” means transferring property to someone who pays interest and principal, but the original borrower remains responsible for the mortgage. It’s risky for both parties, and “subject to mortgage” can also refer to a mortgage lien affecting property sales.
The term subject to a mortgage is often used to indicate a situation in which real property is transferred or assigned to someone other than the party that owns the mortgage. In such a situation, the buyer of the property begins to pay the interest and principal payments on the property. However, he does not agree to take responsibility for the mortgage or receive the real estate title. Instead, the original borrower, who has an outstanding mortgage on the property, is still officially responsible for paying the mortgage lender.
In most home buying situations, a buyer pays the property owner in full. Usually, he does this with his own money or by taking out a mortgage. However, in some cases, a party can take over the payments on a property without obtaining a mortgage or paying the owner in full. If you do not assume the mortgage, the property owner is still legally responsible for paying the mortgage. The term mortgaged is generally applied to this type of arrangement because the payments for the property have been transferred but the title and financial responsibility for the real property is still subject to the mortgage contract.
A transfer or assignment of mortgaged property is risky for both the new buyer and the original owner. In such a situation, the two of you are dependent on each other for the success of the deal. If the new buyer defaults on his payment, the owner may face foreclosure on the property. To avoid foreclosure, he would have to resume his mortgage payments whether or not he could afford them. The buyer, on the other hand, risks being evicted in the event that the payments he makes are applied incorrectly and the mortgage lender forecloses on the property.
A mortgage situation is often compared to assumption since in both cases a new party takes over the mortgage payment. In one assumption, however, the new buyer gets title to the property and full responsibility for paying for it. The original borrower waives his or her responsibility to pay the mortgage.
Sometimes the term subject to mortgage is also used to indicate a mortgage lien that would affect the sale of a property. This occurs when there is more than one mortgage on a property. For example, a person cannot buy or assume a home considering only the second mortgage on the property. Instead, the sale or assumption of the property is subject to the first mortgage.
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