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Assumption of house

M

Millions

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I am in the middle of having someone assume my house.

I did this so I could get my DP back and breakeven.

They are going into Scotiabank to qualify for it and it is also Genworth insured.

The down payment (cash to mortgage) they are giving is $70K.

Purchase price is $540K.


I was told After sometime, Genworth could give me a letter releasing me of liability but Genworth told me they don`t do that.

Does anyone know ways to mitigate the risk here? Also, if I am at risk for 35 years, and at some point it defaults, how would I go about getting the house back if I am to pay off its debts.
 
QUOTE (Millions @ May 21 2010, 04:17 PM)
...I was told After sometime, Genworth could give me a letter releasing me of liability but Genworth told me they don't do that.



Does anyone know ways to mitigate the risk here? Also, if I am at risk for 35 years, and at some point it defaults, how would I go about getting the house back if I am to pay off its debts.


It is at the discretion of lender and of lender's insurer (i.e. GenWorth) to release you of the liability.



I assume this is a high ratio mortgage. A mortgage over 80% loan-to-value (LTV) must be insured in Canada. Thus, if the new borrower defaults you are on the hook for the entire loss that the lender can't retrieve from sale of property, unless you get a written release by GenWorth. This is at their option, not yours. You could have made this a condition of sale.



So, if new buyer defaults, an dteh house sells for 400K and the mortgage a year from now is 530K you may be liable for 130K.



Get a letter of indemnity from buyer at least. This indemnifies you on their default, but GenWorth can still come after you for the life of the mortgage insurance if they want. You now have the right to sue the borrower/buyer afterwards.



In practice likely they will not come after you after a year or 2 .. but it is in their discretion not yours.



Another option for you is to give the buyer a 2nd mortgage behind a new 80% one. Then the most you could lose is the mortgage value of your 2nd mortgage.
 
QUOTE (ThomasBeyer @ May 21 2010, 04:46 PM)
It is at the discretion of lender and of lender's insurer (i.e. GenWorth) to release you of the liability.



I assume this is a high ratio mortgage. A mortgage over 80% loan-to-value (LTV) must be insured in Canada. Thus, if the new borrower defaults you are on the hook for the entire loss that the lender can't retrieve from sale of property, unless you get a written release by GenWorth. This is at their option, not yours. You could have made this a condition of sale.



So, if new buyer defaults, an dteh house sells for 400K and the mortgage a year from now is 530K you may be liable for 130K.



Get a letter of indemnity from buyer at least. This indemnifies you on their default, but GenWorth can still come after you for the life of the mortgage insurance if they want. You now have the right to sue the borrower/buyer afterwards.



In practice likely they will not come after you after a year or 2 .. but it is in their discretion not yours.



Another option for you is to give the buyer a 2nd mortgage behind a new 80% one. Then the most you could lose is the mortgage value of your 2nd mortgage.








If it were to default, Can I somehow just take the house back since I would be essentially paying of the debt anyways?



Matt
 
The reality is you can be liable for any shortfall if the purchaser defaults, even after 5 years. I know of one right now that is 4 year old assumption.

You are limiting your liability as the purchaser has to qualify. There still is a few assumable mortgages out there, but few and far between, decreasing every year.

You could sell the house without the existing mortgage, but the existing mortgage is what is making the deal for the purchaser.
 
QUOTE (Millions @ May 24 2010, 11:44 AM) If it were to default, Can I somehow just take the house back since I would be essentially paying of the debt anyways?

Matt
you are the guarantor of the debt. The debt is owned by the bank, guaranteed by
a) the house, followed in priority if too low in value by
b) the CMHC or GenWorth insurance, followed by
c) your guarantee

Thus: no risk for the bank .. thus: a low low mortgage rate and willingness to lend to 95% .. "made in Canada sub-prime mortgages" in some instances !!

Thus, for a CMHC or GenWorth insured mortgage you will be personally liable for any shortfall. You could register an interest (i.e. a caveat) on title on sale if you`d allowed that in your purchase contract .. then you will be contacted on a default and be given a chance to buy the house back !
 
QUOTE (ThomasBeyer @ May 24 2010, 08:13 PM)
you are the guarantor of the debt. The debt is owned by the bank, guaranteed by

a) the house, followed in priority if too low in value by

b) the CMHC or GenWorth insurance, followed by

c) your guarantee



Thus: no risk for the bank .. thus: a low low mortgage rate and willingness to lend to 95% .. "made in Canada sub-prime mortgages" in some instances !!



Thus, for a CMHC or GenWorth insured mortgage you will be personally liable for any shortfall. You could register an interest (i.e. a caveat) on title on sale if you'd allowed that in your purchase contract .. then you will be contacted on a default and be given a chance to buy the house back !




Thanks for all the replies. I really feel screwed by Scotiabank on this deal. They told me the buyer had to qualify but now that the deal is closing June 1st, they told me lawyer there is no qualifying process.



So this guy just has to sign papers. He is giving me 70K but now Im really nervous. Dont think there is really a way out of this now.



I didn't put a clause in for me putting a caveat on so I'm wondering how to mitigate my risks now. Taking the house back in default doesnt worry me if I can do it. Losing the house and being sued does.
 
QUOTE (brentdavies @ May 24 2010, 01:13 PM)
The reality is you can be liable for any shortfall if the purchaser defaults, even after 5 years. I know of one right now that is 4 year old assumption.



You are limiting your liability as the purchaser has to qualify. There still is a few assumable mortgages out there, but few and far between, decreasing every year.



You could sell the house without the existing mortgage, but the existing mortgage is what is making the deal for the purchaser.




yes actually according to scotiabank he was suppose to qualify but now I found ou. He didn't. I just got this mortgage in 2009 so it amazes me that he didn't have to qualify.



I have been told that if it defaults and I pay off all the debt then I can claim to get the house back



correct?
 
QUOTE (Millions @ May 25 2010, 07:01 PM)
yes actually according to scotiabank he was suppose to qualify but now I found ou. He didn't. I just got this mortgage in 2009 so it amazes me that he didn't have to qualify.


next time be more careful when wording a contract involcing your personal guarantee. Even if he had qualified your guarantee might (or will likely) stay unless specifically discharged !!



Thus, next time, state

a) mortgage can be assumed with qualifying only, or

b) personal guarantee has to be discharged (although CHMC/Genworth might not let you off the hook), or

c) purchaser signs an indemnity agreement in addition to his personal guarantee on mortgage, and

d) seller has the right to file a caveat on title until insured mortgage is discharged or personal guarantee is discharged



==> keep in mind that the mortgage gets paid dwn every year .. so after a few years the risk is theoretical only .. plus the bank or CMHC or Genworth actually has to sue your for payment .. and they may not do that if only $4500 is owing by you ..




QUOTE (Millions @ May 25 2010, 07:01 PM)
I have been told that if it defaults and I pay off all the debt then I can claim to get the house back



correct?


possibly .. the courts have a lot of leeway .. and if you show up at a court hearing they will hear your argument.



The issue is that you may not hear about it until the house has sold for a low price, and the CMHC or Genworth letter arrives demanding you pay the shortfall !



You can probably register a caveat anyway as you have "an interest" in this property via a personal guarantee on the mortgage !
 
If the guy is giving you $70k and the property cash flows you are at very low risk of losing out in my opinion.

Also - I believe you are only liable during the TERM of the mortgage... so likely 5 years or less from when you first purchased. When the term is up the new borrower will have to sign up for a new term and I am almost positive you are off the hook at that point.
 
QUOTE (RedlineBrett @ May 26 2010, 09:01 AM)
If the guy is giving you $70k and the property cash flows you are at very low risk of losing out in my opinion.



Also - I believe you are only liable during the TERM of the mortgage... so likely 5 years or less from when you first purchased. When the term is up the new borrower will have to sign up for a new term and I am almost positive you are off the hook at that point.






Not to jump on you on this one Brett, but he is liable for the entire life of the mortgage, not just the term. Realistically though, in 4 years the price of the home should be worth more than the mortgage and he won't get sued.



Millions I have heard of multiple times when the person took back the home after the assumer defaulted. It is up to the discretion of the bank and/or court, but if you went and said I'll take care of the debts and restart making payments, you should be fine. If you want to stay prepared for this, figure it could be anywhere from 3-12 months of mortgage payments, plus property taxes (and condo fees if it were a condo). You would likely have to pay for repairs to the home, but that would be after.



We all make mistakes Millions, just make sure you don't make this one again.



Good luck
 
And as mentioned, you may not hear about the home being foreclosed on until too late, I`d do a drive by every once in a while.
 
QUOTE (DaveRhydderch @ May 26 2010, 11:03 AM)
Not to jump on you on this one Brett, but he is liable for the entire life of the mortgage, not just the term. Realistically though, in 4 years the price of the home should be worth more than the mortgage and he won't get sued.



Good luck




Are you 100% positive on this one Dave? The new borrower would be signing up new terms with the lender... so basically a whole new mortgage agreement once the original term expires.



Once the term ends the contract ends... If the current borrower and the bank signs a new agreement I find it pretty hard to believe that the previous borrower - who's contract has now expired - could be held liable.



Especially if the bank has allowed their mortgage to be assumed by this person and doubly so if they qualified them...



I have had a few conflicting opinions from a couple mortgage brokers and the lawyers all tell me it's 'whatever is in the mortgage contract'...
 
QUOTE (RedlineBrett @ May 26 2010, 11:40 AM) Are you 100% positive on this one Dave? The new borrower would be signing up new terms with the lender... so basically a whole new mortgage agreement once the original term expires.

Once the term ends the contract ends... If the current borrower and the bank signs a new agreement I find it pretty hard to believe that the previous borrower - who`s contract has now expired - could be held liable.

Especially if the bank has allowed their mortgage to be assumed by this person and doubly so if they qualified them...

I have had a few conflicting opinions from a couple mortgage brokers and the lawyers all tell me it`s `whatever is in the mortgage contract`...


This came from a CREB course on foreclosures. I remember it because it was so surprising. I can`t remember the exact reasoning, but now that I`m thinking about it, the insurance is bought once for the mortgage. You don`t pay that again. The insurance is bought through CHMC/Genworth, not through whoever the mortgage is with. The letter releasing you from liability comes from the insurer, not the bank. Therefore, until the mortgage is paid, the original person who took insurance on the mortgage is still liable.

That seems to make sense in a logical sense. I can check my book again tonight to see if anything else/different was said.
 
QUOTE (DaveRhydderch @ May 27 2010, 09:48 AM)
This came from a CREB course on foreclosures. I remember it because it was so surprising. I can't remember the exact reasoning, but now that I'm thinking about it, the insurance is bought once for the mortgage. You don't pay that again. The insurance is bought through CHMC/Genworth, not through whoever the mortgage is with. The letter releasing you from liability comes from the insurer, not the bank. Therefore, until the mortgage is paid, the original person who took insurance on the mortgage is still liable.



That seems to make sense in a logical sense. I can check my book again tonight to see if anything else/different was said.




Hmmm interesting information regarding the insurance... Thanks for sharing!
 
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