When the mortgage lender assigns their mortgage and its interest to a new lender, it’s called mortgage assignment. The lender uses an assignment-of-mortgage document to transfer the mortgage legally.
It is important for real estate students and agents to understand how mortgage assignment takes place. As a real estate professional, I will help you define mortgage assignments for your real estate exam.
In this post, I’ll break down the mortgage assignment definition and explain it with the help of examples. Let’s get started!
What Is Mortgage Assignment?
A mortgage assignment is when a mortgage lender transfers a mortgage account and its interests to another lender. Assignment of mortgage is a document that indicates the transfer of mortgage between the lenders. This type of assignment is mostly seen when a mortgage lender sells the mortgage to a new lender.
Mortgage lenders have the right to assign and sell their mortgages to other parties, while borrowers are not. If a borrower transfers their mortgage to another person, it is called an assumed mortgage.
Mortgage lenders aren’t required to inform the borrower when they transfer their mortgages. However, the new lender has to notify the borrower about the mortgage assignment and set the payment schedule with the borrower. If the borrower doesn’t want to work with the lender, they can apply for a new mortgage and pay off the old mortgage.
How Does Assignment of Mortgage Take Place?
Mortgage lenders often assign their mortgages to other lenders to free up money. When a mortgage assignment occurs, the new lender steps in place of the original lender and takes their mortgage obligations. The assignment of mortgage document has the following contents:
- The legal description of the property in discussion (the collateral)
- Name of the original lender
- Name of the third-party (new lender)
- Name of the borrower
- The jurisdiction where it was recorded
- The amount of money loaned originally
- The date on which the assignment of mortgage becomes valid
After preparing the assignment of mortgage document, the mortgage lender files it in a government office that deals with property taxes, ownership records, and other real estate matters. After the mortgage has been filed and transferred to the new lender, the borrower is notified. The borrower can confirm the sale of the mortgage and inquire about the new lender. They can also negotiate mortgage rates and terms.
Once the original lender has assigned the mortgage to a new lender, they will not receive mortgage payments. The borrower will pay the monthly mortgage payments to the new lender after the assignment of mortgage. However, the original lender will free up capital by assigning the mortgage to a new lender. This will help the original mortgage lender to offer more mortgages and generate more income.
After the borrower has paid the mortgage in full to the new lender, the lender must file a satisfaction of mortgage. After the satisfaction of mortgage has been recorded, the borrower’s property will be free of the lien.
Effects of Mortgage Assignments
When a lender transfers a mortgage, the original terms of the mortgage remain the same. The interest rate, monthly payments, and total payments to pay off the mortgage remain unchanged. The term and rates after mortgage assignment are the same as at closing.
However, some things might change. For instance, the borrower must check the payment method and know where the payments should go. This is important to know as the borrower should make the payments to the right holder of the mortgage.
Another thing that might change after mortgage assignment is the process that the lender will follow if the borrower defaults. Mortgage lenders use different notification methods, which the borrower must be familiar with to avoid confusion. The following are the effects of the assignment of mortgage:
Notice to Borrower
The original lender doesn’t send notice to the borrower for assigning the mortgage. They don’t need the permission of the borrower to transfer the mortgage either. However, the new mortgage holder has to notify the borrower about the mortgage assignment.
No modification occurs after mortgage assignment. The original features of the mortgage remain the same after the assignment of the mortgage. The mortgage balance, interest rate, and monthly payments will not change.
The changes to an escrow account are also down according to the original escrow agreement. However, if there is a modification, such as an additional payment method, it would be at the request of the borrower and the mortgage lender’s discretion.
Effects on Escrow Payments
Mortgage lenders receive the bills for the property from the municipality. However, when the lender transfers the mortgage to another lender and files it at the local recorder’s office, a copy is sent to the municipality too. After the assignment of mortgage, the taxing municipality sends the tax bills to the new lender’s address.
Mortgage Assignment Example
Alice wants to purchase a property. After making a down payment, she has to pay $175,000 to the seller to purchase the property. Bank-A offers $175,000 to Alice, and she purchases the house. The following is the breakdown of the mortgage:
- Mortgage balance: $175,000
- Mortgage term: 15 years
- Rate: 4.5%
- Monthly payments: $1,519
Alice has to pay $1,519 to Bank-A every month, which includes the interest and principal. After five years, Bank-A decides to sell the mortgage to Bank B. At this time, Alice has a remaining balance of $119,657.98, which she has to pay to Bank-A.
Bank-A files for the assignment of mortgage documents at the local county office, and Bank-B takes the mortgage from here. Bank-B notifies Alice she has to make the monthly payments of $1,519 to Bank-B now. However, the remaining mortgage term is 10 years, as she has already paid off for the previous 5 years.
Frequently Asked Questions
What Is Mortgage Assignment?
Mortgage assignment is the process of mortgage transfer from one lender to another lender. The original lender does this transfer to a new lender. Usually, a mortgage assignment is done for selling the mortgage to a third party.
Who Files the Assignment of Mortgage?
The original lender files the assignment of mortgage at the local county’s office. The new lender notifies the borrower about the assignment of mortgage.
What Happens After Mortgage Assignment?
After the mortgage assignment, the new lender takes the role of the original lender. The borrower has to make mortgage payments to the new lender after the mortgage assignment. The rates and terms on the mortgage with the new lender remain the same as they were with the previous lender.
Why Do Lenders Sell Mortgages?
Lenders mostly sell mortgages for two reasons. First, they want to free up capital to provide more mortgages to other borrowers. Second, they want to generate income by selling the mortgage to another lender. The original lender charges a fee from the new lender, and this way, cash is generated.
What Is Assignment Fraud?
Assignment fraud is when a fake company sends a notice to the borrower and acts like a new lender. This happens when the original lender hasn’t assigned the mortgage to any other lender. In this case, there is a chance that the borrower sends payments to the fake company, mistaking it as a mortgage assignment. Thus, it is important for the borrower to confirm with the original lender before making any mortgage payment to anyone else.
What to Know for the Real Estate Exam
A mortgage assignment is when the original lender transfers the mortgage to a new lender. This type of assignment is common between lenders who sell mortgages to each other. Lenders sell mortgages to free up capital and buy more mortgages to offer them to other borrowers. Mortgage assignment doesn’t change anything for the borrower, except that the borrower has to make mortgage payments to the new lender.
Do you now understand how mortgage assignment works? If you are unclear about something, let me know in the comments. Once you’re done, go through these Real Estate Terms to learn more definitions.