Assumption

Key Takeaways

• An assumption transfers an existing mortgage debt to the buyer, who becomes primarily liable for the remaining payments on the seller's original terms.
• The seller stays secondarily liable after an assumption unless the lender signs a written release of the original borrower, which is a novation.
• A due-on-sale clause lets the lender declare the whole balance due when the property transfers without the lender's prior written consent.
• Taking title subject to an existing loan is not an assumption, because a subject-to buyer never becomes personally liable on the note.

What It Means

An assumption is a change of borrower, not a change of loan. The buyer steps into the seller's existing mortgage and takes over the remaining payments at the interest rate, balance, and payoff date already written into the note. Nothing is refinanced, so a rate the seller locked in years ago carries forward to the buyer untouched.

Two liabilities are in play, and the exam tests both. The buyer becomes primarily liable, which means the lender looks to the buyer first for every future payment. The seller remains secondarily liable behind the buyer unless the lender signs a written release of the original borrower. That release is a Novation, and without one a seller who moved out years earlier can still be pursued for the debt if the buyer stops paying.

Assumptions get valuable when market rates climb well above the rate on an existing note, because the buyer inherits cheap money no new lender would write today. The catch is the gap between the sale price and the loan balance. The loan comes over at whatever is left on it, so the buyer has to cover the rest in cash or with a second loan.

How It Works in Washington

Two doors have to open for an assumption to close. The first belongs to the lender. Federal law at 12 U.S.C. 1701j-3 defines a due-on-sale clause as a contract provision authorizing a lender, at its option, to declare due and payable the sums secured by its security instrument if the property is sold or transferred without the lender's prior written consent, and the same section lets lenders enforce that clause notwithstanding contrary state law. An assumption of a conventional loan therefore normally means the lender underwrites the buyer and consents in writing.

The second door is the state's recording plumbing. In Washington the security instrument is a Deed Of Trust under chapter 61.24 RCW, and RCW 61.24.005 defines "borrower" and "grantor" as separate roles: the borrower is the person liable for the obligations secured by the deed of trust, while the grantor is the person who executed the deed of trust to encumber that person's interest in the property. Those definitions are the whole assumption problem in statutory form, because who owes the debt and whose property secures it can be two different people after a transfer.

If payments stop, none of that ambiguity protects the house. RCW 61.24.020 provides that a deed conveying real property to a trustee in trust to secure performance of an obligation may be foreclosed by trustee's sale, and the sale runs against the property no matter who has been writing the checks.

Example

Dana bought a Spokane house in 2021 for $450,000 with a $360,000 loan at 3.25 percent over 30 years, an 80 percent Loan To Value Ratio. The principal and interest payment is $1,566.74.

In 2026 Dana sells to Trevor for $525,000. Sixty payments in, the loan balance is $321,504.33. Trevor applies to the lender, is approved, and assumes that balance, then covers the remaining $203,495.67 of the price with cash and a second loan.

The payment is where the value shows up. Trevor keeps Dana's $1,566.74 for the 25 years left on the note. A new loan of the same $321,504.33 at 6.5 percent over 30 years would run $2,032.13 a month, so the assumption saves Trevor $465.39 every month. Dana asks the lender for a written release at closing. Without it, Dana is still on the note behind Trevor for the rest of the term.

Common Mistakes and Exam Traps

• Assumption and subject-to are different transactions. An assuming buyer becomes personally liable on the note, while a subject-to buyer takes title with the lien attached but owes the lender nothing personally.
• Lender approval of an assumption does not by itself release the seller. Releasing the original borrower takes a separate written novation.
• An assumption does not renegotiate the loan. The interest rate, the remaining term, and the payoff date all carry forward unchanged.
• A due-on-sale clause is an option the lender may exercise, not an automatic result. The lender can also consent to the transfer instead of calling the balance.