Debt Transfer Agreements

Debt can rarely be transferred to another person, but there are a few situations where this is possible. Sometimes a benefactor can assume someone's debt account, if the local government allows it. Companies may buy credit card debt from other companies to collect on it themselves as well. But one of the most popular forms of debt transfer occurs when a buyer agrees to purchase a home and transfers the current mortgage on that home over to himself.

Process

When a buyer agrees to transfer a mortgage from the seller and assume liability for it, it is known as a loan assumption. A loan assumption does not mean that the loan has started over completely. Rather, the buyer accepts the mortgage in its current state, except that he will now be responsible for the monthly payments and the rest of the loan amount, as long as the lender agrees to the situation. There is no way to get rid of the debt entirely -- it must be paid, and any organization offering to transfer debt away entirely is presenting a scam.

Advantages

At first there may seem to be few advantages to accepting a debt transfer, but it actually provides a way for a savvy buyer to purchase an ideal property. The seller of the property may be willing to sell for a much lower price if the mortgage or debt associated with the property goes with it; this can mean significant savings for the buyer. In some cases, sellers (especially of commercial properties with complex liens) are only willing to sell at all if the buyer agrees to transfer debt, giving the willing buyer a unique opportunity.

Considerations

For a simple property like a home, a debt transfer agreement is a relatively easy process. But these transfers are more common with large commercial properties, and in these cases the transfer can become complicated. Large properties may have multiple liens, some decades old, that can cause problems for a new owner willing to buy debt. Many buyers try to convince lenders to make sure there are no previous defaults on the property that could require the buyer to pay off additional, unsurfaced loans. For the most part, though, it is the duty of the buyer to investigate the liens against a property before purchasing it.

Modifications

Lenders cannot simply switch the old loan documents over to a new borrower -- instead, they create a brand new loan using the wording of the old loan verbatim, except for changes in ownership and liability. Lenders are rarely willing to modify the loan transfer in any other way. Sometimes, modifications are made to correct errors or to slightly alter equity agreements for corporations.