A homeowner has a mortgage on her property. She signs a contract to sell the home to a buyer. The contract includes a provision stating that the buyer will take on the responsibility of making the mortgage payments after the transfer. However, the buyer fails to make payments, and the bank sues the original homeowner to recover the unpaid balance. Can the bank hold the original homeowner liable for the unpaid mortgage under these circumstances?
No, because the bank has the option to pursue the buyer first for non-payment before holding the original homeowner liable.
Yes, because the original homeowner remains personally liable unless released from liability by the lender.
No, because the sale of the property transfers mortgage responsibility to the buyer.
Yes, because the liability depends on whether the transfer agreement was recorded properly with the county.
The correct answer is accurate because, under general property law principles, the original homeowner remains liable under the terms of the mortgage agreement unless the lender explicitly releases them from their obligation. The sale of the property, including a contractual agreement for the buyer to assume mortgage payments, does not alter the original borrower's liability to the lender absent a formal release. Other answer options misinterpret the effect of the sale or the necessity of recording agreements. For instance, liability does not shift entirely to the buyer unless the lender expressly agrees, and the lender is not legally obligated to pursue the buyer first before holding the original borrower responsible. Additionally, while recording the transfer agreement might protect parties in other contexts, it does not affect the original lender's ability to hold the original borrower liable under basic mortgage principles.
Ask Bash
Bash is our AI bot, trained to help you pass your exam. AI Generated Content may display inaccurate information, always double-check anything important.
What does it mean for a homeowner to be 'released from liability' by the lender?
Open an interactive chat with Bash
What is the difference between assuming a mortgage and a formal release from liability?
Open an interactive chat with Bash
What implications does the recording of a transfer agreement have on the original homeowner's liability?