Dangers Of letting The Buyer Assume Your Mortgage

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Desperate times call for desperate measures. Many Americans are facing financial problems and foreclosure. In the current housing market, prices are falling and there is an over supply of house. One way to get out of the mess is to sell the house. But it isn't easy.

Some houses are on the market for seven months or longer. Open houses aren't working. Dropping the price isn't bringing qualified buyers to the table.

One seller was so desperate that she allowed the buyer to assume her mortgage. I advised against doing this. It is too risky. I wouldn't do it for my mother.

Fortunately, the bank approved the buyer and the payments were on time for 4 years and then the house was sold. Happy ending!

But what if? If the buyer stopped making the payments. What if my friend wanted to buy another house. What if the property taxes were not paid. What if a contractor did some work, wasn't paid, and put a lien against the house.

If the buyer stopped making payments the lender would pursue the seller, my friend, for the payments. This could turn ugly and end up being a foreclosure.

If the seller wanted to buy another house there would be this unresolved liability hanging around. Chances are she would have been declined for another mortgage.

If the property taxes were not paid the city has a right to put a lien against the house. If the tax bill remains unpaid, the house could be sold on the court steps at auction.

Regarding the contractor, the lien would remain until he is paid. When the house is eventually sold he would be on record and would get his money plus court costs plus interest.

If you do decide to let a buyer assume your mortgage, be sure to get a Release of Liability for your lender. It is basically a document saying that you are free and clear and is not responsible for the mortgage. This information will also be reported to the various credit bureaus.

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