Nationwide Mortgage Licensing System (NMLS) Practice Exam

When title is transferred and the buyer assumes no liability for the note, this type of transference is known as:

1. Free and clear

2. Subject to the mortgage

3. Assumption

4. Novation

The correct answer is: Subject to the mortgage

The correct answer, "Subject to the mortgage," refers to a situation where the buyer takes ownership of the property but does not assume personal liability for the existing mortgage debt. In this case, the seller remains responsible for the debt, but the buyer acquires the property with the existing mortgage encumbering it. When a buyer assumes a mortgage "subject to," they are aware that the loan remains in the seller’s name and that if the seller defaults, the lender can initiate foreclosure proceedings regardless of who occupies the property. This understanding allows the buyer to take advantage of the existing financing terms without taking on the obligations associated with the note, thus minimizing their immediate financial liability. In contrast, the remaining choices represent different scenarios in mortgage transfers. "Free and clear" typically implies that a property is owned outright without any liens or mortgages against it. "Assumption" is when a buyer takes on personal liability for the mortgage along with the property, which is distinctly different from being "subject to" the mortgage. "Novation" involves creating a new contract that replaces the old one, effectively discharging the original party's obligations, which is not the case when merely transferring the title "subject to."