Mortgage Payment Assignment
The best way to sell a property FAST, where the property either has a little equity or is not more than 20-30% under water, is through a Mortgage Payment Assignment sale.
A Mortgage Payment Assignment sale (also called an Assignment of Mortgage Payment Sale) is the sale of a property in which the deed (ownership of the property) transfers to an investor or buyer in exchange for their legal agreement to take over the payments on the current mortgage(s). It’s important to note that although virtually no loans are assumable, anyone can assign their payments to another borrower along with ownership.
Mortgage Payment Assignment Sale Example
- Current Appraised Property Value: $200,000
- Existing loan(s) payoff: $225,000
- Sales price: $225,000
In this example, the property is transferred to the investor or buyer subject-to the existing loan(s) that the new owner is then responsible for making the payments on the loan(s).
The sales price is the balance of the loan(s),which may even be a premium above the current appraised property value. Typically when a property is sold with financing, as in this example, it will sell faster and at a premium price, because the buyer is getting the financing. This is because loans are currently difficult to get, and because in general, buyers are buying based more on the terms of the loan (monthly payment and money needed at closing) than the price of the property.
Mortgage Payment Assignment Sale Advantages and Disadvantages
The advantage to selling a property through a mortgage payment assignment sale is that it will typically sell much FASTER and even at a premium sales price because it comes with financing, even if the property is worth less than the total amount owed.
The disadvantage to selling a property though a mortgage payment assignment sale is that the seller’s name remains on the loan. It is somewhat analogous to having a seller co-sign for a loan on behalf of a buyer. Obviously this is not as desirable as a not having to remain on the loan, however, it is usually a better alternative to a short sale, traditional listing (where the seller will have to bring money to the closing), foreclosure, etc. For many sellers, living in areas where hundreds or thousands of properties are available on the market, the most valuable thing they have to offer the market place, is their loan itself, and the mortgage payment assignment program allows these sellers to sell, and to sell FAST.
Obviously, for most people they would prefer to sell FAST and at a PREMIUM PRICE and without leaving the loan in place. Unfortunately, no such options exist.
Common Questions about a Mortgage Payment Assignment Sale
Question: Can I stay in the property?
Answer: Yes, it’s your property until you sell it. You are expected to stay in the property until a buyer is found and the sale is completed, although you are not required to. When you complete the sale, you are expected to move out.
Question: Should I make the payments until the property is sold?
Answer: We would prefer to assign mortgage payments that are current. If you are behind, a mortgage payment assignment may still be possible, however, the more behind, the more a buyer would have to bring to closing to make the loan current – and the less likely it will be that a buyer can be found to buy the property.
Also, as the loan goes into default, a foreclosure becomes possible.
Generally if you are not able to keep a loan going, WE CAN HELP by doing a short sale on your property. Often we can start a short sale and mortgage payment assignment program together (a COMBO PLAN) and if a buyer can’t be found in time for the mortgage payment assignment program, we can fall back to the short sale to avoid a foreclosure. For more information Contact Us
Question: Are there other alternatives to doing a Mortgage Payment Assignment?
Answer: In general, if a property has little or no equity, the only way to sell the property is to do a short sale or mortgage payment assignment. Otherwise you would have to bring money (potentially a lot of money) to the closing table in order to cover the closing costs, commissions, and payoff shortage.
If you don’t want to sell your property, you may consider negotiating a forbearance or loan modification agreement with your lender. These agreements generally allow a property owner to agree to a schedule to “make up” missed payments that resulted from a temporary interruption in income and/or reduce the payments going forward. If your situation is more permanent than temporary, you will likely not be approved for forbearance, in which case a short sale or mortgage payment assignment is probably a better option. Also, the majority of loan modifications are not approved by lenders and many property owners that pursue this option ultimately end up in foreclosure.
Question: How long does my name need to remain on the loan?
Answer: Until the buyer ultimately re-sells the home, refinances the loan or pays the loan off. If you want to place a time limit on the loan you are assigning, you CAN put a balloon term on the loan, making the loan expire after 3, 4, or 5 years (or any amount of time you desire) at which point the buyer will be required to refinance.
Question: How does this program affect my credit?
Answer: It depends. If you are behind in making your payments and/or have a spotty payment history, at the time that a buyer buys the property, through the mortgage payment assignment program, your payments will be brought current and this will generally improve your credit.
For many sellers, as payments continue to be made monthly, and in a timely fashion, their credit will continue to improve or remain unchanged. Obviously, if payments are late or missed, your credit will decline.
In most cases, although the loan(s) remains in your name these loans are treated by the credit bureaus as cash neutral accounts (a debt with an offsetting credit). However, each person is treated individually so check with someone you trust.
Question: How do I know the payments are being made?
Answer: The best way to monitor the payments is to have a loan servicing company collect the payment from the buyer and make the payment to the underlying lender(s) while sending the buyer as well as you, the seller, a statement each month. We can arrange this automatically as part of the closing for the mortgage payment assignment program. You can also usually check the status of the loan using your lender’s online system.
Question: Will I make any money?
Answer: In most cases, if the property has little, no, or negative equity, there is no money to be made by the property owner.
In cases where the property has a significant amount of equity, the property owner may receive money through an alternative strategy such as the wrap-around mortgage sale or owner financing sale.
Question: Will I have to pay anything?
Answer: Depending on the property, situation, and buyer’s resources, the property owner may or may not be asked to pay some closing costs. Typically, the owner will pay their portion of the closing costs only.
One of the great benefits of this program is that most of the closing costs, assignment fees, and commissions (if any) are paid by the buyer.
Also, the property is generally sold as-is and repairs are generally the responsibility of the buyer.
Question: How long does this process take?
Answer: FAST! There is no guarantee, but normally 2-10 weeks, but it could be less than a week! Most of this time is used showing the property to a list of buyers that have already been found that are looking for properties, like yours, offered for sale with financing.
As with any sale, you can negotiate the closing date with the buyer.
What are the odds of success?
Good! Of course many factors affect the odds of success – most notably, would anyone want this property with this payment?
It has always been true that offering a property with financing, as is done with the Mortgage Payment Assignment Program, allows a property owner to sell a property FASTER and with a higher loan balance than any other method of selling a property.
What if the buyer stops making the payments?
If payments are missed, you have the right to foreclose on the property and get it back. In most cases it would be preferable, however, to call the buyer (or let the loan serving company do this) and try to resolve the situation, by telling the buyer to deed the property back using a deed-in-lieu, so that a foreclosure on them (and the destruction of their credit) is not necessary.
In all cases if there is trouble with the buyer, call Real Property Hero and we will be happy to help resolve the problem and/or get the property back so that we can quickly sell it again.
Question: What if the buyer trashes the property?
Answer: The advantage of SELLING a property through the Mortgage Payment Assignment Program is that the buyers are actually buying the property and not renting. In most cases buyers have a pride in property ownership and care more for the property than renters.
Additionally, these buyers are bringing their hard earned money to closing when they buy. So unlike renters who are just putting down a small deposit, the buyers have much more skin in the game, in the form of their down payment. They may even make substantial improvements to the property after they buy it as is the case with many homeowners.
Finally, if you threaten to foreclose on a buyer, you can also often negotiate the terms under which the buyer will return the property to you, in exchange for you treating them more fairly in a foreclosure proceedings. For example, you can offer to allow them to stay in the property for an extra so many days in exchange for them cleaning and make-readying the property for a new buyer and deeding the property back to you so that you don’t have to foreclose.
Regardless of the condition of the property, it can always be offered to a new buyer as-is.
Question: What if I have multiple loans or liens against my property?
Answer: No problem. All loans/liens against a property can all be consolidated and assigned to the buyer going forward. If a loan servicing company is used (Real Property Hero can arrange this), all of the underlying loans can be automatically combined into a single new loan and escrow account on behalf of the buyer.
Question: If I can’t afford this property, should I declare bankruptcy?
Answer: Some people facing payments on a mortgage they cannot afford consider bankruptcy as an alternative. The truth is that bankruptcy does not prevent a property from still being foreclosed on – it just delays the process briefly.
If selling the property through the Mortgage Payment Assignment Program (or a short sale) would leave you financially solvent, it is probably a far better alternative to bankruptcy.
Question: What happens if I do declare bankruptcy?
Answer: A property cannot be sold or foreclosed on (auctioned) while in bankruptcy (Ch 7 & 13).
When a property owner declares bankruptcy, the lender will file a motion with the bankruptcy court to have the property removed from the bankruptcy so they can foreclose.
Bankruptcy is a common strategy to avoid foreclosure, but the reality is: bankruptcy only DELAYS the foreclosure temporarily, and does not prevent it.
Fees and missed payments pile up during bankruptcy making foreclosure more likely and less preventable, which can usually leave property owners with a bankruptcy AND a foreclosure on their credit.
If a property owner’s financial problems can be mostly resolved by selling the property, a Mortgage Payment Assignment Sale or short sale is often a much better option than a bankruptcy.
If bankruptcy is inevitable, timing the Mortgage Payment Assignment sale or short sale with the bankruptcy is critical. It’s often better to do the sale first, or if that is not possible, to coordinate the sale during bankruptcy so that it can be started as soon as the property is removed from the bankruptcy.
Real Property Hero has experience working with bankruptcy attorneys while negotiating property owner’s short sales or coordinating a mortgage payment assignment sales. If you are considering a bankruptcy, we will need your bankruptcy attorney’s contact information.
Question: What about the interest deduction and the 1098 Interest statement I get every year?
Answer: Your lender will continue to issue a 1098 interest statement with your name on it each year.
However, because you are no longer the owner of the property, and the one paying the mortgage, you are no longer entitled to take the interest deduction.
The new buyer is entitled to take the interest deduction. Therefore, they will disregard your 1098 statement and have their CPA generate a new one for them. If a loan servicing company services the loan (we recommend this and can arrange for this), then a 1098 with the proper name on it will be generated and sent to the new buyer.
Question: Can I buy or rent another property after selling using the Mortgage Assignment Program?
Answer: There is no rule that says you can’t have more than one mortgage, and, for example, most landlords have many mortgages.
If your goal is to rent, having someone responsible for the payment of the mortgage payment on your last property will likely help your credit situation (versus the alternatives of a short sale or foreclosure) and improve your ability to rent a home.
If your goal is to buy another property, you may have to explain to your new lender (when asked about the old loan still on your credit report) that you sold the property through a Mortgage Payment Assignment Program. In some cases, the underwriter will ask the new buyer (or loan servicing company) to send a brief letter verifying that the property was sold through a Mortgage Payment Assignment Program and a new party is responsible for the payments going forward.
Note: in some cases, although someone is making the payments on the loan, and the amount of the payment covers the expense of the payment, having the loan will affect your debt to income ratios. This can push some buyers below the current lending thresholds. Each individual is treated differently and getting another loan on a new property is certainly not guaranteed. So you’ll need to check with a mortgage banker to find out how your individual situation will be treated.
Another option, if you would like to buy another property is to ask us, Real Property Hero, to find you a property that is also available through the Mortgage Payment Assignment Program.
Question: What kind of buyer will buy the property?
Answer: Possibly a person with less than perfect credit, but with an income sufficient to make the monthly payments, and enough up front cash necessary to pay most of the fees and closing costs associated with the Mortgage Payment Assignment Program. Possibly a self-employed person that can’t get a conventional loan in the current lending environment. In some cases a buyer with excellent credit and income that simply can’t get a loan because of current underwriting standards, or simply does not want to put down the very high down payment required in the current lending environment.
Question: Do my neighbors have to know I’m selling my property?
Answer: Not necessarily. When a property is sold through the Mortgage Payment Assignment Program it is usually marketed to an existing list of pre-qualified buyers. If it’s OK with you, it is preferable to also put a For Sale sign in the yard.