Can I Assign My Mortgage?

Assignment of a mortgage generally refers to the transaction in which a lender transfers the mortgage to another party. If a property owner who has a mortgage wishes to transfer that mortgage to someone else, his ability to do so usually depends on the mortgage instrument. Those with questions about a specific mortgage should seek professional advice.

The Mortgage Relationship

A mortgage creates a lender-lendee relationship. A real property owner, or a party planning to buy property, takes out a loan and puts up his property as security for the loan. Mortgages enable many parties to buy properties; however, sometimes parties take out a mortgage with property they already own, simply to raise funds. Should the property owner fail to pay back the loan at the time and in the manner promised, the lender may then seize the property. In this relationship, the property owner is known as the "mortgagor" while the lender is the "mortgagee."

Assigning a Mortgage

Assignment occurs when the mortgagee decides to transfer the loan and his accompanying security interest in the mortgage to another party. Some states demand that the mortgagee legally transfer both the mortgage and the accompanying note that proves the loan, while other states hold that transfer of the mortgage automatically completes transfer of the note as well. The typical assignment is accomplished by enforcing the note and executing assignment of the mortgage using a separate contract instrument.

Transferring Mortgaged Property

If the mortgagor wishes to transfer her property and pass the mortgage along with it, the transfer can play out in one of two ways. The new owner, known as the "grantee" can take the property "subject to" the mortgage, meaning that the first mortgagor stays primarily liable for the mortgage debt. Or the grantee can "assume" the mortgage, which makes the grantee the first point of liability for the mortgage debt. However, assumption of mortgage doesn't completely release the original mortgagor; he remains the secondary point of liability on the mortgage debt, unless both the mortgagee and the grantee enter into an agreement releasing the original mortgagor entirely.

Prohibitions on Transfers

In theory, both the mortgagor and mortgagee have the right to transfer their respective interests in the mortgage. However, the mortgage instrument serves as a contract, and it may contain numerous rules specific to a particular mortgage. The mortgage instrument may prohibit either the mortgagor or mortgagee from transferring his interest; such a clause is required for the mortgagee to object to a mortgagor's transfer of the property. The instrument may also contain a clause known as a "due on sale" clause; these clauses allow the lender to demand immediate repayment in full if the mortgagor doesn't get the mortgagee's consent before transferring the property.

References

• “Property (6th Edition)”; James E. Krier et al.; 2006
• Cornell Legal Informaton Institute: Mortgage Law: An Overview
• U.S. Legal: Mortgages
• RealTown: Assumption of Mortgage

Resources

• Buy Your Home Guide: Mortgage Transfer