Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentMedium
A buyer is interested in purchasing a commercial property with an existing loan. The current lender agrees to allow the buyer to assume the seller's mortgage, but only if the seller remains primarily liable for the debt. What type of loan assumption has occurred?
- ASubject to the mortgage
- BAssumption without novation
- CConditional assignment
- DNovation
Show answer & explanationAnswer & explanation
Correct answer: B. Assumption without novation
In an assumption without novation, the buyer takes over the seller's mortgage payments, but the seller remains secondarily liable. If the buyer defaults, the lender can pursue the seller.
Why the other options are wrong
- A. Taking 'subject to the mortgage' means the buyer is not personally liable for the debt; only the property is at risk.
- C. Conditional assignment is not a recognized type of loan assumption in real estate finance.
- D. Novation would fully release the seller from liability, replacing them with the buyer.
Assumption Without Novation
A buyer takes over the seller's existing mortgage payments, but the seller remains primarily liable for the debt to the lender.
- Seller retains primary liability.
- Buyer makes payments but is not fully responsible to the lender.
- Common in older, assumable mortgages or specific lender agreements.
Memory trick: Assume a loan, decide who's on the hook: new deal or old debt.