A question for lenders.

[Pavel Shemyakin]

Hi, I had a question about loan assumptions. After reading through a lot of threads on BP, it seems as the general consensus is that most financial institutions will exercise alienation clause when they find out that the property has been taken over subject to, and that most lenders will not entertain an attempt to do a loan assumption. The general idea behind not wanting to do assumptions is that the lender benefits from starting a NEW loan with a fresh amortization schedule.

However, if you are a lender and one of your mortgagors / trustors is about to default, wouldn’t it make sense to let them do an assumption?

From what I understand, most lenders are not in a business of foreclosing properties. It takes a long time, it costs money, and it hinders their ability to originate more loans – thus collecting those sweet sweet origination fees before passing the note to secondary markets.

Now lets take a look at it from an investor’s and seller’s point of view.

Seller who has a small amount of equity, will walk away with nothing after foreclosure sale, so they would much rather walk away with noting AND no foreclosure.

An investor is gaining that small amount of equity that the seller had. (Only if the numbers make sense for the investor ofcourse)

The lender doesn’t have to foreclose.

It seems to me that assumptions can be beneficial to everybody in certain situations.

Am I missing a point? Am I not taking something into account? I would love to get feedback from some lenders / experienced investors.

Thanks!