A friend is offering his house to me without taking a traditional mortgage. How does this work and what are the rules.
Real Estate Attorney
Your question of whether you can assume another person's mortgage is governed by the Garn-St. Germain Depository Institutions Act of 1982. Because most mortgages contain a due-on-sale clause, any transfer or sale can trigger your friend's mortgage to accelerate (meaning that the entire balance of the mortgage would become due immediately). If the mortgage is covered by the Act, one, you will need the Bank's consent and two there are only limited exceptions about when you can assume a mortgage and transfer title to your name, for example when you inherit a property or when a joint owner dies or if parties are divorcing. You'll need to work with the lender's assumption department in those instances. If it is a FHA or VA mortgage, they are assumable and they would not fall within the Act and whether you need the lender's approval will depend on the date of the mortgage. It can never hurt to contact the lender to see if they would approve an assumption in cases that fall outside of one of the Act's exemptions but I would not waste a lot of time on it because the instances where they are granted are far and few between.
If your friend is not released by the lender in an assumption, he is at great risk financially because his loan could be called in. In the case of a FHA or VA loan (which is only assumable by other Veterans) he is at great risk of going into default if you don’t keep up with the payments and even with lender approval remains liable for a period of time. If you fall within one of these loans, you would need to check the exact conditions for assumption.
If you are concerned I recommend that you consult with a Pennsylvania real estate attorney. This post is for general information purposes only and is not legal advice and there is no attorney-client relationship.