A buyer of a property may wish to finance the purchase by way of assuming the mortgage financing. It must be determined if the mortgage is assumable or not.
What is the liablity to the Seller after closing with respect to the assumsed mortgage?
Under the terms of the mortgage, the Mortgagee(lender) is entitled to look to the convenant of the Seller if there is default.
Therefore it is important to provide the Seller with a means of release from the ongoing liabilites associated with an assumed mortgage.
There are two ways to release the Seller from his/her convenant....
1. Consent to assumption - all parties accept the assumption by the Buyer from the Seller...
2. Novation - This is operation of law... If it can be determined that the Mortgagee, the Buyer and the Seller had all the relevant facts and the Mortgagee accepted the Buyer as principal borrower and accepted the new mortgage in full satisfaction of the old mortgage, then a defence of Novation can be raised....
Why is this important to you?? If you have an interest in property, are looking to sell, and have an assumable mortgage then this information should be considered.