Mortgage assumption - in need of experienced guidance

[Paul B.]

Hi All,

I'm looking for folks who have assumed a mortgage before and can help me figure this out. Ok. So here's the deal. I've got a mortgage assumption on a multifamily property (4plex). Straight-up assuming a loan is something I gather that is rare these days, and is usually only done on FHA. And that's what I'm looking at here. The questions in my mind have mostly to do with the mechanics of setting this transaction up properly and also protecting myself and the owner through proper documentation. I've previously used regular sale and purchase agreements for my transactions, but given this is an assumption, it's going to be a bit different. I'd like to figure out what that "assumption contract" needs to look like and what to watch out for in closing this. I've got an "assumption agreement" example that takes care of the mortgage assumption part of things, warranty deed, and release of liability to the owner, but in my mind leaves off a lot of things I would want to have in a contract for sale & purchase of this property.

In this case, I'm not sure what happens for insurance, taxes, rents, and interest up to "closing". Is all pro-rated as with a regular purchase agreement? Do we still split transfer and recording charges? It seems that would still need to be spelled out. Thoughts?

And I think the contract needs other items, such as stating inclusions/exclusions, non-encumbrance, permanently attached fixtures, property condition on possession, final inspection rights, warranties transfer, title search and transfer of title, and contingencies.

I understand that there may be a fee from the lender for the transaction in the neighborhood of 1%?

What contingencies are still valid in this kind of transaction? The ones that stand out for me are termite/WDO, and home inspection. I can't see any reason for an appraisal or financing contingency (I have the property next door, so I know what the appraisal will be). Is it a poor assumption to go into this as an "as-is" transaction? What has been your experience here? Have you made a home inspection a contingency on an assumption?

Lastly, I'd like to do my own escrows, versus what the current owner is doing now. with all rolled into the payment. Is it possible to modify the agreement between the bank and the owner when assumed by me to waive escrows? Does that need to be in the assumption agreement/contract? What happens to the PMI the owner is currently paying?

I think one "gotcha" here I can think of is to make sure the owner continues to pay the mortgage after we sign the contract. I sense "badness" if he does not.

Lots of questions. I'm sure someone has traveled this road before and can help. I leave it in your capable hands! Thanks a lot everyone --