May 21, 2019 Mortgage assignment is the most commonly used solution in the event of separation or divorce. Requires the consent of all parties to the loan. Also a bank, which must agree to change the borrower. The assignment may also relate to the transfer of rights from the insurance contract. The effect of signing the assignment agreement in the event of damage will be the payment of compensation to the bank’s account. Let’s find out more about it!
What is an assignment?
The term “assignment” is derived from Latin and is translated as voluntary withdrawal, transfer, resignation, renunciation of something. In our article we will talk about the assignment of a mortgage understood as the transfer of the obligation to settle the debt to another person.
As we mentioned, the assignment requires the consent of each party – both the current and new borrower and the banking institution in which we concluded the loan agreement. The bank does not always accept this move. It has the right to consider that the new borrower does not have sufficient financial credibility. The bank gives the final answer only after thorough verification of its creditworthiness.
When to assign a mortgage?
It is said that credit connects more than marriage. However (more and more often!) It happens that our paths diverge and divorce becomes the main reason for the mortgage assignment. Provided that we have concluded a loan agreement together! However, the divorce decree does not change our credit situation. After the divorce, the marital property community ceases, but shared debts, such as credit, are not broken down. All the time we are obliged to repay the loan in accordance with established joint and several liability of debtors. Only rewriting the loan for one of the former spouses (the one who will keep the property) releases the other from debt. How to do it?
How to sign a cession agreement?
How to sign a cession agreement and transfer the mortgage to another person? There will be no assignment if we do not complete the formal issues at the bank.
Assignment of a mortgage loan step by step:
- Co-borrowers’ consent to assign a loan.
- Bank’s consent to transfer the mortgage to one of the existing co-borrowers.
- Re-verification of the credit compliance of the person to be the sole borrower. To this end, it is necessary to show documents confirming the income received.
- Signing of an annex to the agreement on the change of the borrower and taking over by him the obligation to pay the entire debt.
It may be that the new borrower is not sufficiently creditworthy. In this situation, it is worth thinking about overpayment of the loan so that the amount remaining to be repaid is within the repayment possibilities of the person to whom the loan is to be transferred.
Overpayment of the loan is not the only option if the bank refuses to grant a mortgage assignment. Noteworthy solutions also include:
- joining a new co-borrower, e.g. one of the parents,
- establishing additional collateral, e.g. guaranteeing a loan or mortgage on another property,
- refinancing a mortgage and signing a new contract only by one of the existing borrowers.
Transferring a mortgage to a completely new borrower whose name is not in the contract is not practiced. Banks prefer the client to use other available solutions or sell an apartment with a mortgage.
Sale of an apartment with a loan
Sometimes the only option is not an assignment, but the sale of an apartment with a loan. Buyers are the only owners of the apartment and can freely dispose of it. We will be required to provide a certificate of debt and a document confirming the purchase of real estate. After the sale, we should remember to delete the mortgage from the land and mortgage register in favor of the new buyer. We don’t have to do it alone. An application for entry may be submitted by a creditor, i.e. a bank, a real estate owner or a new owner.
What does assignment of insurance mean?
Assignment of insurance also applies to mortgage, but involves the purchase of property insurance and assignment of rights from this insurance to the bank. what does it mean? The assignment of rights from the property insurance policy to the bank is the transfer of rights from insurance of the given property to the bank with which we signed the loan agreement. This means that if there is an event covered by insurance, e.g. flooding an apartment or fire, the bank will receive the insurance benefit.
Although insurance increases the cost of the mortgage, it is necessary. If we do not comply with the obligation to insure the property, the bank may even terminate the loan agreement with us! The bank determines the required scope of insurance and the amount for which the property should be insured. It is also not possible to opt out of a bank policy assignment. The assignment constitutes additional security for a banking institution. The assignment agreement expires on its own upon expiry of the insurance contract.
What should the insurance assignment agreement look like?
The desire to establish the assignment of rights from insurance to a bank should be notified to the insurer at the time of concluding the insurance contract. You can also submit the right application during the term of the contract, remembering to do it as soon as possible. Insurance companies usually have ready assignment contract templates. They take the form of an annex or annex to the main property insurance contract. Let’s check the following information in the document:
- the subject of the assignment, in this case a house or a flat,
- data of the assignee (bank),
- data of the assignor (borrower),
- the amount of the assignment corresponding to the value of the property,
- date of signing the assignment agreement,
- signature of assignor (borrower) and assignee (bank),
- signature and stamp of the person who accepts the assignment notice on behalf of the insurance institution.
In the case of minor damage, despite the assignment, the money from compensation can immediately affect the account of the owner of the apartment. This allows you to make the necessary repairs immediately.
It is also worth adding that any surplus compensation awarded will be returned to the borrower’s account. Therefore, if the amount granted by the insurer exceeds the amount necessary to cover the damage, the remaining money will go to the owner’s account.