Buying a Property with Existing Mortgage in the US and UK

Feb 21, 2023 - 09:50

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Buying a Property with Existing Mortgage in the US and UK

Buying a property subject to existing mortgage can be a great way to acquire real estate without the need for a traditional mortgage. However, the process can be complex, and it's important to understand the legal implications and risks involved. In this article, we'll provide a comprehensive guide on how to buy a property subject to existing mortgage, with details and tips for the process in the US and the UK.

What is a Property Subject To Existing Mortgage?

When a property is sold subject to an existing mortgage, the buyer takes over the seller's mortgage payments without actually assuming the mortgage. This means that the original mortgage remains in the seller's name, but the buyer takes over the payments and has the right to occupy the property. This type of transaction can be a win-win for both the buyer and the seller, as the buyer gets the property without having to qualify for a new mortgage, and the seller gets out from under their mortgage obligation.

Legal Implications in the US and UK:

The legal implications of buying a property subject to existing mortgage vary between the US and the UK. In the US, the buyer must ensure that the mortgage agreement does not contain a "due on sale" clause, which would require the mortgage to be paid in full if the property is sold. If the mortgage contains a "due on sale" clause, the seller must pay off the mortgage before selling the property, or the buyer must obtain a new mortgage. In the UK, the buyer must obtain the mortgage lender's consent to the transfer of the mortgage to the buyer, or the seller must pay off the mortgage before the sale.

Steps to Buying a Property Subject To Existing Mortgage:

Conduct a thorough title search: The first step in buying a property subject to existing mortgage is to conduct a thorough title search. This will ensure that the property is free and clear of any liens or encumbrances that could affect the sale.
Negotiate with the seller: The next step is to negotiate with the seller on the terms of the sale, including the purchase price and the terms of the mortgage payments. The buyer should also ask the seller to provide documentation of the mortgage and any other relevant information about the property.
Draft a purchase agreement: Once the terms of the sale have been agreed upon, the buyer and seller should draft a purchase agreement that outlines the terms of the sale, including the amount of the mortgage payments, the length of the mortgage, and any other relevant details.
Obtain legal advice: It's important for the buyer to obtain legal advice from a real estate attorney to ensure that the purchase agreement is legally binding and that the buyer's interests are protected.
Close the sale: Once the purchase agreement has been signed, the sale can be closed. The buyer will need to make the mortgage payments to the lender on behalf of the seller, and the seller will need to transfer the property title to the buyer.

Risks and Considerations:

Buying a property subject to existing mortgage can be a great option for some buyers, but it's important to understand the risks and considerations involved. One of the biggest risks is that the mortgage lender could call the mortgage due if they become aware of the transfer of ownership, which could result in the buyer losing the property. Additionally, the buyer is responsible for making the mortgage payments, even if the property value decreases or if the rental income is insufficient to cover the mortgage payments.