How to Assume a Promissory Note

A promissory note is a signed document that records a promise to repay debt. If the debtor is no longer able to keep the promise to pay, someone else can assume the promissory note and take over the obligation. Promissory notes are used for personal loans, business loans and real estate transactions. In California, a trust deed is always used together with a promissory note. Assuming a promissory note is simple, provided you and the loan qualify for the assumption.

Step 1

Read the loan agreement. Not all promissory notes are assumable. Most loans contain a "due on sale" clause. In the promissory note, it is called the "transfer of property or a beneficial interest in borrower." The clause gives the lender the legal right to call the entire loan balance due if ownership changes hands. If the clause is present, the loan is not assumable without permission from the lender.

Step 2

Discuss the deal with the debtor. If there is equity in the home, negotiate a buyout price. If you don't have the funds available, you might need to take out a personal loan to pay the owner.

Step 3

Contact the debtor's lender to obtain an assumption packet. Assumptions are subject to credit and income requirements. You'll need to prove you have the ability to make the monthly payment before the debtor's liability is released.

Step 4

Submit the assumption packet to the lender. When you're approved, you begin taking over the payments. If you're assuming a home, you negate the need for a closing since you're not creating a new mortgage.

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