MBE Rules · Real Property
Mortgage transfer — assumption vs taking subject
The rule
Transfer "subject to" the mortgage: transferee not personally liable; original mortgagor remains primarily liable. "Assumption": transferee becomes primarily liable, mortgagor secondarily (suretyship). Due-on-sale clauses enforceable in most cases (Garn-St. Germain).
In plain English
When a property with a mortgage is transferred, the new owner can either agree to pay the mortgage (assumption) or not (subject to). If they assume, they are responsible for the debt; if not, the original owner remains responsible.
Worked example
Buyer purchases a house with an existing mortgage. If Buyer assumes the mortgage, they must pay it off. If Buyer takes it subject to the mortgage, the Seller is still on the hook if payments aren't made.
Memory hook
Assume the debt, own the risk. 'Subject to' keeps risk with seller; 'assumption' shifts it to buyer.
The trap
Students think: 'subject to' means buyer is liable. Wrong, because it only affects property, not personal liability. The actual test is if buyer assumed the mortgage.
How examiners test it
The MBE loves: property sold with existing mortgage. Question: who is liable? Trap: assuming 'subject to' means buyer's liability. Watch for assumption language or due-on-sale clause.
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