Mortgage subrogation is the act of transferring an existing mortgage of real property to a new buyer. This transfer allows the latter to qualify for the existing mortgage without applying for a new one. Subrogation is an equitable doctrine intended to avoid unjust enrichment.We should be given priority above First State’s mortgage.
If a mortgage does not have a clause requiring notice to the lender, called sale clause, a buyer can assume without asking the lender. This kind of acceptance, not qualifying mortgage call establishes a situation in which the new purchaser is responsible for making payments on the mortgage, but the original purchaser becomes the guarantor.
If no sale clause, the lender must approve the substitution of a mortgage. This kind of acceptance, called qualifying, requires the buyer to apply for the loan subrogation. In this case, the original purchaser is completely free of the mortgage once this is approved.
In a non-qualifying subrogation, the buyer will likely pay a fee to have the papers are completed. So generally , the terms and rates remain the same. In a qualifying subrogation, the new buyer must apply for a mortgage, paying closing costs, and is also subject to changes in rates or terms.
One of the biggest risks to the original purchaser in a non-qualifying subrogation is that becomes the guarantor of the loan. If the new buyer were to default on the loan, the lender could foreclose. If the lender then sells the property for less than the mortgage amount, this would result in a deficit in the balance. The former buyer is responsible for the deficiency in this.
For a new buyer, not qualifying subrogation is a great benefit if the rates of interest and mortgage costs have risen; will not be subject to new costs and new rates of interest. Furthermore, a qualifying subrogation removes any liability to the original purchaser of the mortgage.