It's the latest "new" craze in the real estate investment world - the Mortgage Assignment, or MA.
The concept of a MA is simple and straightforward: Assignee/Buyer assumes ownership of the property AND financial responsibility for all attached liens (Mortgages and "possibly" other liens).
The property remains in the name of the original Seller and the investor, or real estate agent, becomes the Assignor - meaning they accepted a fee for putting the MA together.
In most cases, the assignee is "purchasing" a property on which the debt obligation exceeds the "current market value".
As far as the assignees are concerned, it's a good enough deal because they are not able to qualify for a loan, in this current economy, but they don't want to rent and the MA appears to be a fantastic solution.
A magic solution to the woes of millions of sellers that are facing foreclosure, NOT facing foreclosure, need to sell, want to sell, have been unsuccessful in selling their "over-leveraged" homes, and the list goes on.
On the surface, it sounds like a bumper crop for real estate investors and agents.
Truthfully, MAs can have devastating affects on sellers, buyers and lien holders - whose loans are "assumed" by the assignee/buyer.
We all understand that mortgages are not assumable without the written approval of the mortgagor, generally speaking, right ?
Mortgagors also have MI (Mortgage Insurance), in the event that the mortgagee fails to honor their debt obligation, as outlined in the mortgage/Note.
Many attorneys are stating that the transaction of a MA will void the terms of the MI, because the property is no longer considered owner occupied - so the lender/servicer would have to foreclose.
However, it's also suggested that if the lender was served notice, through the closing of the MA, that the use of the property has changed - the policy could still be maintained, though the cost could increase.
That's one reason for concern.
More reasons should be clear, as well, like:
Have you heard of buyer's remorse ?
What could happen, years down the road, when the economy is recovering and all those sellers have moved on, settled into a life that does NOT include the debts they left behind to their assignee/buyer on that MA deal ?
While it's possible that the assignee/buyer could now qualify for a loan, they also may have come to realize that the house they "purchased" may not be worth what's owed - maybe they want out - they've gone through "changes" and their house no longer suits their needs - what could happen ?
Think REAL hard about that AND the mess that could ensue, like litigation and more credit challenges, like who is ACTUALLY responsible for the liens on that property (HINT: The original seller).
Consider, also, because YOU assigned that deal (Assignor), to that assignee, what your liability might be relating to ALL those deals you closed, with your name, your company - it could be a long and hard road for you.
Am I saying that MAs are bad news ? Not sure - I'm still researching them.
I recommend you do the same.
Peace out ~
Mik - New To You RE, LLC
At mikcohen.com - we enjoy sharing insights, helpful tips and specific information. Feel free to comment and share your knowledge and experience, but please keep it respectful.