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Who’s Loan Is It Anyway?

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Posted On: 06/09/2010

QUESTION:

We’ve had a mortgage for two years, and all payments have been made on time. The loan is in my father’s name. We would like to remove his name and add mine. I have very strong credit. Is this possible?

ANSWER:

When people talk about changing names on mortgages, what lenders hear is the term “assumption.”

There was a time when loans were “freely” assumable and could be taken over without the lender’s permission. The last of these loans was made probably 20 years ago. Today, we have “qualified” assumptions, an expression that means the lender must approve takeovers.

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Most lenders will readily agree to add a name to the mortgage – that’s good for lenders because if something goes wrong there are more people to chase. But removing a name is unlikely. Some thoughts:

• If you can assume the loan, that could be a very good deal if it means avoiding another loan origination and closing, both costly events. Assumptions also can be good if they mean a lower interest rate when compared with current market interest levels.

• Sometimes a lender will agree to an assumption in exchange for a fee or other consideration.

• If there’s an assumption, your father needs a written release of liability from the lender.

• There may be situations where a lender cannot prevent an assumption. For instance, under the Garn-St. Germain Act, a lender cannot stop an assumption with “a transfer where the spouse or children of the borrower become an owner of the property.”

If you’re getting title to the property – perhaps for “good consideration” (love and affection, not cash) – then it also may be possible to assume the existing loan.

However, if there’s no consideration, then is the property a gift? What about gift and estate taxes? Can “good consideration” help you avoid state transfer taxes?

Go no further with this until you’ve spoken with a local real estate attorney.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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