A buyer in Lafayette, Indiana is purchasing a property that is subject to an existing mortgage. The buyer and seller agree that the buyer will take title 'subject to' the existing mortgage rather than assuming it. Six months later, the buyer stops making payments and the lender forecloses. Which of the following correctly describes the seller's liability in this situation?
Correct Answer
B) The seller remains personally liable on the promissory note because the original obligation was never released
When a buyer takes title 'subject to' an existing mortgage, the buyer acknowledges the mortgage exists and agrees to make payments, but does NOT personally assume the debt obligation. The original borrower (seller) remains personally liable on the promissory note because no novation or assumption agreement was executed to release the seller from the original debt. If the buyer defaults, the lender can still pursue a deficiency judgment against the seller as the original signer of the promissory note.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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