Assumption of a Loan (AYU September 2024)

Presented by Hayden-Anne Breedlove, Associate Counsel

In today's real estate market, buyers may seek to assume a seller's loan to take advantage of lower interest rates. While most lenders generally do not allow loan assumptions, some do — most notably lenders who administer Veterans Administration (VA) loans. When a loan is assumed, the buyer takes over the loan payments and the real estate, but sellers must ensure they are released from liability under the loan agreement to avoid credit issues if the buyer defaults.

For title companies, the process involves obtaining a title search, seeing that appropriate documents are recorded, and either endorsing the existing lender’s policy or issuing a new lender’s policy. 

Because the purchaser in an assumption transaction will usually request an owner’s title insurance policy, the title search requirements for an assumption transaction do not differ from a normal purchase and loan transaction. The documents to be recorded in an assumption may be slightly different than a normal purchase and loan transaction: In an assumption transaction, the documents to be recorded will certainly include a deed of assumption and many also include a separate deed of trust modification. If the title company that issued the existing loan policy is also involved in the assumption transaction, then that title company will endorse the existing loan policy to reflect the new borrower and recorded document(s) without changing the original policy date. If the title company involved in the assumption transaction did not issue the existing loan policy a new replacement policy must be created. The replacement policy should identify the prior policy and state that a claim may only be made under one of the policies, not both.

In handling these transactions, it is crucial to work closely with underwriting for appropriate pricing and compliance with the necessary procedural steps. For further assistance and detailed guidance, contact VAUnderwriting@OldRepublicTitle.com.