“Subject To” Mortgage: Buyer purchases the property “subject to” the mortgage: Has TPB implications.1.Definition: Buyer buys seller’s equity to the home,but does not agree to takeon seller’s underlying mortgage obligation. He buys the property “subject to the mortgage.” He is simply agreeing to purchase the seller’s equity in the property; he is not agreeing to take on the underlying mortgage obligation. Seller gives deed to the property to the buyer; buyer pays certain amount for his equity, and begins to pay his monthly payments.2.If Default: a.Bank can go after only original owner, not the “subject to” owner.b.However, Even though the buyer does not agree to take on the seller’s mortgage obligation, the seller may still sue the buyer for breach of K in the event of default on the Subject To Mortgage. 3.No TPB K created in favor of Bank:New owner is not agreeing to take on old owner’s underlying mortgage obligation.4.As practical matter:Banks are not giving subject to mortgages today. Only way to get this, is by a private transaction between buyer and seller, with no lending institution involved. 5.New owner = Promisor; Old owner = Promisee iii.Take out a brand new mortgage:No TPB implications (no need to know for test)iv.Pay cash for the property:No TPB implications (no need to know for test)c.Break in Assumptions: TPB can be created after break (Majority view). i.Hypo:1.Original owner owes mortgage to bank. New owner buys property from owner,assumes the mortgage of the original owner. Therefore, a TPB relationship is created in favor of the bank.2.Over a period of time, new owner #2 buys the property, but buys it subject to the mortgage. Agreeing to pay Owner #1’s equity in the property; not assuming the mortgage. Therefore, no TPB relationship created. There was a break in assumption here.3.10 years more later, New Owner #3 buys property, and agrees to assume the mortgage. However, there was an earlier break in assumption. ii.Majority Rule:Even though there has been a break in assumption, the bank is still aTPB between New owner #3 and New Owner #2, and (if default) bank can go all the way up the chain to the original buyer, and to all owners who assumed the mortgage,but NOT to the person who bought “subject to.” Original owner also cannot sue “subject to” buyer if default, because “subject to” buyer never assumed responsibility for the mortgage, or the risk associated with it. iii.Attorney Malpractice:attorney may expose a client to a liability that he did not have, by having a new buyer buy an assumption to, from someone who merely had a “subject to”. Should have just bought another “subject to”. iv. ASSIGNMENTS AND DELEGATIONS 1. Definitions: You assign right and delegate duties
a. Assignment: When a Assignor transfers an existing right to Assignee b. Delegation: When a Delegator designates another person, delagatee, to undertake a duty originally held by the delegator . 2. Difference between TPB and Assignment/Delegation: a. TPB: Rights of 3 rd party are created by one single contract b. Assignment/Delegation:
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