Simple Assumption
Definition and meaning of Simple Assumption in real estate.
Simple assumption is a transaction in which a buyer takes over the seller's existing mortgage payments, but the original borrower remains secondarily liable if the buyer defaults.
In more detail
In this arrangement, the lender does not release the seller from the debt obligation, meaning both parties remain legally tied to the loan. If the buyer fails to make payments, the lender can pursue the seller for the remaining balance. Because of this high financial risk, simple assumptions are relatively rare in modern transactions and are usually restricted to older government-backed loans.
Sellers should understand that their credit and assets remain at risk unless they obtain a formal, written release of liability from the lender.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Seller liability | Seller remains secondarily liable |
| Buyer role | Buyer takes over monthly payments |
| Watch out for | Risk of credit damage to the seller if the buyer defaults |
A home buyer agrees to purchase a house by taking over the seller's existing home loan through a simple assumption, but when the buyer defaults a year later, the lender contacts the original seller to demand payment of the outstanding debt.
Frequently asked questions
How does a simple assumption differ from a novation?
A simple assumption leaves the seller secondarily responsible for the debt, whereas a novation completely releases the original seller from liability and replaces them with the buyer.
Do lenders need to approve a simple assumption?
Yes, in many states, lenders must approve the assumption, and they typically charge a fee and run a credit check on the buyer.