Simple Assumption

How a Simple Assumption Actually Works in Real Transactions

A simple assumption is an informal way for a buyer to take over an existing mortgage payment stream without going through a full lender-approved assumption. Title to the property transfers to the buyer, the buyer agrees to make the payments, but the original borrower stays on the note with the lender. In other words, the bank still sees the seller as responsible, even if the buyer is the one living in the home and mailing the monthly checks.

In the broader context of assumable mortgage basics, a simple assumption sits at the least formal end of the spectrum. At the other end is a full, lender-approved assumption, often called a formal or novation-based assumption, where the lender underwrites the new buyer and releases the seller from liability. Understanding this spectrum helps a buyer or seller see that a simple assumption is not just a cheaper or faster version of an assumption, it is a fundamentally different risk structure.

In practice, a simple assumption typically looks like this:

• The buyer and seller negotiate a purchase price for the property.
• The buyer pays cash or obtains separate financing for any equity the seller has above the existing loan balance.
• The buyer agrees in writing to take over the seller's existing mortgage payments according to the current terms of the note.
• The lender is often not a party to this agreement and may not formally approve it.
• The loan usually stays in the seller's name on the lender's books, and the existing interest rate, amortization schedule, and maturity date remain in place.

Because the lender has not substituted the buyer for the seller on the loan, the seller remains fully liable if anything goes wrong. If the buyer pays late or stops paying, those late payments and any default will appear on the seller's credit history, and the lender can pursue the seller for the unpaid debt. The buyer's promise to the seller is enforceable only through their private agreement, not through the original loan documents.

For buyers, the appeal of a simple assumption can be the ability to step into an existing loan with a favorable interest rate or terms without the time and scrutiny of a full lender underwriting process. For sellers, the appeal is usually speed and flexibility. However, those benefits have to be weighed against the structural risk that the lender still looks to the seller as the primary responsible party.

Risks, Protections, and When a Simple Assumption Makes Sense

A simple assumption can be a useful tool, but only when everyone involved understands the tradeoffs. Compared with a formal, lender-approved assumption, the main difference is where the risk lands if the buyer fails to perform.

Key risks for the seller include:

• Continuing legal liability: The seller remains obligated on the note. If the buyer stops paying, the lender can report late payments against the seller's credit and pursue collection or foreclosure against the seller as if the property had never been sold.
• Limited control after closing: Once the buyer owns the property, the seller has less leverage to force timely payments, even if the private agreement is clear.
• Possible conflict with loan terms: Some mortgage contracts include a due-on-sale clause, which allows the lender to call the loan due if the property is transferred without consent. A simple assumption that ignores this risk may trigger issues with the lender.

Buyers also face specific risks:

• Lack of formal recognition by the lender: Because the lender may still view the seller as the borrower, the buyer may have limited ability to negotiate changes to the loan or receive clear communication from the lender.
• Potential for disputes if the relationship sours: If the buyer and seller disagree about who paid what and when, the dispute is handled under their private contract, not under the original mortgage note.

To manage these risks, parties considering a simple assumption often focus on clear documentation and contingency planning:

• Draft a detailed written agreement that spells out payment amounts, due dates, who handles tax and insurance escrows, and what happens if either side breaches the agreement.
• Clarify who is responsible for communicating with the lender, tracking statements, and confirming that payments have been applied correctly.
• Address what happens if the lender objects or attempts to enforce a due-on-sale clause.

A simple assumption tends to make the most sense in situations where the buyer and seller have a high level of trust, such as within families or long-standing business relationships, and where both sides are fully aware of the ongoing liability the seller carries. Even in those situations, it is worth comparing the option against a formal assumption or new financing so that both parties understand what they gain and what they are putting at risk.