Four Ways toPurchase Mortgaged Property
A buyer may purchasemortgaged property in at least four ways:
1. Cash. The mortgage may be paid infull from the sale proceeds, a satisfaction of mortgage recorded, and theproperty delivered free and clear of the mortgage lien at the time of closing.
2. Subject to the mortgage. If the existing mortgagedoes not contain a due-on-sale clause, the mortgaged property may be purchasedsubject to the mortgage. Here both the existing mortgage and the existing noteremain the obligation of the seller. The buyer is responsible for regularpayments on the mortgage to retain possession. If the buyer fails to makepayments or defaults, the mortgagee can proceed to foreclose. If theforeclosure sale does not satisfy the mortgage debt, a deficiency judgment canbe sought against the original mortgagor, the seller, who has remainedresponsible for the mortgage even though the property was sold. A subject tobuyer does not become personally responsible for paying the seller's debt.
3. Assumption of an existingmortgage. An assumption of the mortgage obligates the buyer to assume liabilityfor the debt. Both buyer and seller are equally liable in the event of default.
4, Novation. Until the mortgage loanis paid off, the seller is liable for the note that was signed at the time theoriginal mortgage loan was created. The seller can be released from theliability of the note when a buyer assumes the mortgage by securing a releasefrom the lender. Novation is the substitution of a new debtor (the buyer) andrelease of a former debtor (the seller) for an existing debt by mutualagreement and with approval of the lender
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