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12. Is the buyer liable for the deficiency?
There is no applicable statute.
Subsequently, the buyer defaulted on the mortgage loan to the bank, and appropriate foreclosure proceedings were initiated. The foreclosure sale resulted in a deficiency.
A man borrowed money from a bank and executed a promissory note for the amount secured by a mortgage on an office building that he owned. Several years later, the man sold the building. As specified in the contract of sale, the deed to the buyer provided that the buyer agreed «to assume the existing mortgage debt» on the building.
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A is incorrect. An assumption of a mortgage makes a buyer primarily liable for any deficiency. Thus, in this case, the buyer is primarily liable. Absent a release by the bank, the man also is liable, although he is only secondarily liable. This situation can be contrasted to one in which the buyer might have purchased «subject to the mortgage,» in which case only the man would be liable for any deficiency.
B is incorrect. The agreement in the contract to assume the mortgage created the primary liability for the deficiency in the buyer. The buyer did not have to sign the promissory note to become liable. Absent a release by the bank, the man also is liable, although he is only secondarily liable for any deficiency.
D is incorrect. A novation occurs when the bank agrees to substitute the personal liability of the buyer for that of the original debtor, who is then released. In that case there would be an assumption with novation. Here there was no agreement by the bank to release the man from liability and to substitute the buyer as being solely liable for the debt. The buyer assumed the mortgage debt and became primarily liable, while the man remains secondarily liable.