Take over payments is an option that requires buyers to assume payments of an established mortgage loan. This strategy is often offered by investors when selling a property to buyers with bad credit, but can also be used by property owners as well.

Before entering into take over payments agreements, buyers should first determine if this is allowed by the mortgage financier. Most loans taken out after 1989 include a \’Due on Sale\’ clause which requires note holders to pay off the loan when property is sold. It is strongly recommended to obtain legal counsel to ensure this method is legal. Otherwise, buyers could set themselves up for financial loss.

Banks oftentimes ignore the \’Due on Sale\’ clause as long as loan installments are paid in a timely fashion. However, buyers should be aware of the potential to lose the property if they cannot qualify for a bank loan should the bank demand payment in full.

Sometimes, sellers use \’Subject To\’ contracts to transfer property rights when buyers assume mortgage payments. These contracts do not give buyers full ownership until they refinance the property into their own name. Instead, property rights are \’subject to\’ fulfillment of the contract. If buyers default on contract terms the property rights revert back to the property owner and buyers lose all funds vested into the property.

Property owners facing foreclosure sometimes offer take over payments to stop foreclosure. This type of transaction can be very risky for buyers. Not only do they assume future loan payments they must be willing to cure mortgage arrears in order to assume the loan.

A large percentage of borrowers at risk for foreclosure owe more on their mortgage than their property is worth. Buyers must conduct due diligence and carefully weigh the pros and cons of taking over an \’underwater\’ mortgage; especially if sellers have entered into preforeclosure.

The only way to safely take over payments without fear of receiving a demand payment notice is to take over loans originally written as an assumable mortgage. This type of loan can be assumed with lender approval and without refinancing the loan.

The two most common assumable mortgage notes are loans backed by the FHA or VA. However, there is one slight catch. Loan origination dates for VA loans must be prior to March 1, 1988, while VA loans must have an origination date on or before December 14, 1989.

Buyers taking over payments of assumable mortgages underwritten by any other lender must obtain written authorization. While the VA and FHA allow buyers to simply assume future payments, all other banks can modify loan terms, increase interest rates, or require a down payment.

Assumable mortgages are a preferred option over Subject To contracts because property owners are released from the financial responsibility of the loan. This is especially significant if buyers default on contract terms. Property owners should obtain a written release of liability statement from the bank.

Both parties should engage in due diligence before entering into take over payments agreements. Sellers should obtain a credit report, background check, and employment verification. Buyers should research public records to verify sellers own the property and have the right to sell it, as well as verify the property is not in foreclosure.

Always obtain legal counsel or consult with a mortgage specialist to ensure take over payments and assumable mortgage loans are in compliance with state and federal laws.

Author Bio: Real estate investor, Simon Volkov shares additional information about take over payments, subject to, and assumable mortgages, along with creative financing strategies for buying houses with bad credit at www.SimonVolkov.com.

Category: Real Estate
Keywords: take over payments, assumable mortgage, subject to, stop foreclosure, fha loans, va loans