Understanding Assumption Deeds with Existing Mortgages

A buyer who finances a real estate purchase receives two important items at closing. The first is the deed, which is the legal document that transfers ownership of the property from the seller to the buyer. The other is the mortgage loan promissory note, which is the buyer's contract to repay the loan and the mortgage that accompanies it. The mortgage is the instrument that secures the loan. Occasionally, a buyer assumes the seller's loan rather than obtains his own.

Loan Assumption

The word assumption means transfer -- in this case, the transfer of responsibility for repayment of a mortgage loan. A real estate buyer who assumes the seller's loan takes that loan over and has it put in her own name. Unlike the "subject-to" loan, with which Bankrate.com notes the assumable loan is often confused, an assumable loan relinquishes the seller from responsibility for repayment once the transfer is complete.

Assumption Benefits and Risks

The assumed mortgage usually has more favorable terms and a lower interest rate than the buyer can qualify for on his own. The benefit to the seller is that allowing the buyer to assume her loan means a quicker sale. However, Bankrate.com cautions that the seller should obtain a written release from the lender to ensure that she has no liability in the event that the buyer defaults on the loan. It's important to note that when the buyer assumes the loan, he's making a contract with the lender, not with the seller.

Warranty Deed

A warranty deed assures the buyer that the seller owns a property outright. The two types of warranty deeds are general and special. A general warranty deed warrants against undisclosed liens or other encumbrances since as far back as the property's chain of ownership can be traced. A special warranty deed warrants against undisclosed liens or encumbrances since the seller has owned the property.

Assumption Warranty Deed

An assumption warranty deed is a general or special warranty deed that has an additional provision. That is, the buyer, who the deed refers to as the grantee -- the person being granted the deed -- assumes full responsibility for repaying the seller's mortgage and any other debt the deed specifies that the buyer and seller have agreed the buyer will pay. This provision differs from the mortgage assumption in that the assumption deed obligates the buyer to the seller, whereas the mortgage assumption obligates the buyer to the lender. Thus, upon execution of the assumption warranty deed and the mortgage loan promissory note, the buyer is responsible to both the seller and the lender for repaying the loan.