Assignment Definition

Investing Strategy

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Table of Contents

  • What Is an Assignment?
  • What is an Assignment in Real Estate?
  • What Does it Mean to Assign a Contract in Real Estate?
  • How Does a Contract Assignment Work?
  • Pros and Cons of Assigning Contracts

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

An assignment or assignment of contract is a way to profit from a real estate transaction without becoming the owner of the property.

The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.

Contract assignment is a common wholesaling strategy where the seller and the wholesaler (acting as a middleman in this case) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.

The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract, which gives the end buyer the right to buy the property in accordance with the original purchase agreement.

In doing this, the wholesaler can earn an assignment fee for putting the deal together.

Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.

The process for assigning a contract follows some common steps. In summary, it looks like this:

  • Find the right property.
  • Get a purchase agreement signed.
  • Find an end buyer.
  • Assign the contract.
  • Close the transaction and collect your assignment fee.

We describe each step in the process below.

1. Find the Right Property

This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will attract buyers and cover their assignment fee.

RELATED: What is “Driving for Dollars” and How Does It Work?

2. Get a Purchase Agreement Signed

Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain specific, clear language that allows the wholesaler (for example, you) to assign their rights in the agreement to a third party.

Note that most standard purchase agreements do not include this language by default. If you plan to assign this contract, make sure this language is included. You can consult an attorney to cover the correct verbiage in a way that the seller understands it.

RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts

This can’t be stressed enough: It’s extremely important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this on or before they sign the original purchase agreement.

3. Find an End Buyer

This is the other half of a wholesaler’s job—marketing to find buyers. Once they find an end buyer, the wholesaler can assign the contract to the new party and work with the original seller and the end buyer to schedule a closing date.

4. Assign the Contract

Assigning the contract works through a simple assignment agreement. This agreement allows the end buyer to step into the wholesaler’s shoes as the buyer in the original contract.

In other words, this document “replaces” the wholesaler with the new end buyer.

Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler if the buyer backs out. While you can download assignment contract templates online, most experts recommend having an attorney review your contracts. The assignment wording has to be precise and comply with applicable local laws to protect you from issues down the road.

5. Close the Transaction and Collect the Assignment Fee

Finally, you will receive your assignment fee (or wholesale fee) when the end buyer closes the deal.

The assignment fee is often the difference between the original purchase price (the price that the seller agreed with the wholesaler) and the end buyer’s purchase price (the price the wholesaler agreed with the end buyer), but it can also be a percentage of it or even a flat amount.

According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.

IMPORTANT: the end buyer will see precisely how much the assignment fee is. This is because they must sign two documents that show the original price and the assignment fee: the closing statement and the assignment agreement, respectively, to close the transaction.

In many cases, if the assignment fee is a reasonable amount relative to the purchase price, most buyers won’t take any issue with the wholesaler taking their fee—after all, the wholesaler made the deal happen, and it’s compensation for their efforts. However, if the assignment fee is too big (such as the wholesaler taking $20,000 from an original purchase price of $10,000, while the end buyer buys it for $50,000), it may ruffle some feathers and lead to uncomfortable questions.

In these instances where the wholesaler has a substantially higher profit margin, a wholesaler can instead do a double closing . In a double closing, the wholesaler closes two separate deals (one with the seller and another with the buyer) on the same day, but the seller and buyer cannot see the numbers and overall profit margin the wholesaler makes between the two transactions. This makes a double closing a much safer way to conclude a transaction.

Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.

The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).

On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.

Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.

It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.

Related terms

Double closing, wholesaling (real estate wholesaling), transactional funding.

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Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “ assignee .”   This concept is used in both contract and property law.  The term can refer to either the act of transfer or the rights /property/benefits being transferred.

Contract Law   

Under contract law, assignment of a contract is both: (1) an assignment of rights; and (2) a delegation of duties , in the absence of evidence otherwise.  For example, if A contracts with B to teach B guitar for $50, A can assign this contract to C.  That is, this assignment is both: (1) an assignment of A’s rights under the contract to the $50; and (2) a delegation of A’s duty to teach guitar to C.  In this example, A is both the “assignor” and the “delegee” who d elegates the duties to another (C), C is known as the “ obligor ” who must perform the obligations to the assignee , and B is the “ assignee ” who is owed duties and is liable to the “ obligor ”.

(1) Assignment of Rights/Duties Under Contract Law

There are a few notable rules regarding assignments under contract law.  First, if an individual has not yet secured the contract to perform duties to another, he/she cannot assign his/her future right to an assignee .  That is, if A has not yet contracted with B to teach B guitar, A cannot assign his/her rights to C.  Second, rights cannot be assigned when they materially change the obligor ’s duty and rights.  Third, the obligor can sue the assignee directly if the assignee does not pay him/her.  Following the previous example, this means that C ( obligor ) can sue B ( assignee ) if C teaches guitar to B, but B does not pay C $50 in return.

            (2) Delegation of Duties

If the promised performance requires a rare genius or skill, then the delegee cannot delegate it to the obligor.  It can only be delegated if the promised performance is more commonplace.  Further, an obligee can sue if the assignee does not perform.  However, the delegee is secondarily liable unless there has been an express release of the delegee.  That is, if B does want C to teach guitar but C refuses to, then B can sue C.  If C still refuses to perform, then B can compel A to fulfill the duties under secondary liability.

Lastly, a related concept is novation , which is when a new obligor substitutes and releases an old obligor.  If novation occurs, then the original obligor’s duties are wiped out. However, novation requires an original obligee’s consent .  

Property Law

Under property law, assignment typically arises in landlord-tenant situations.  For example, A might be renting from landlord B but wants to another party (C) to take over the property.   In this scenario, A might be able to choose between assigning and subleasing the property to C.  If assigning , A would be giving C the entire balance of the term, with no reversion to anyone whereas if subleasing , A would be giving C for a limited period of the remaining term.  Significantly, under assignment C would have privity of estate with the landlord while under a sublease, C would not. 

[Last updated in May of 2020 by the Wex Definitions Team ]

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

define assignment in real estate

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

  • Get your deposit back and lock in your profit sooner
  • Avoid paying land transfer taxes
  • Avoid paying HST
  • Maximize your return if prices are declining and you expect them to continue to decline
  • Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

  • The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
  • Marketing restrictions are annoying and reduce the chances of finding a Buyer
  • Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
  • Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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define assignment in real estate

Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

define assignment in real estate

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

define assignment in real estate

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

define assignment in real estate

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

define assignment in real estate

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

define assignment in real estate

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

define assignment in real estate

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

define assignment in real estate

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

define assignment in real estate

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

define assignment in real estate

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

define assignment in real estate

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

define assignment in real estate

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

define assignment in real estate

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

define assignment in real estate

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

define assignment in real estate

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

define assignment in real estate

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

define assignment in real estate

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

define assignment in real estate

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

define assignment in real estate

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

define assignment in real estate

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

define assignment in real estate

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

define assignment in real estate

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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Assignee: What it is, How it Works, Types

define assignment in real estate

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

define assignment in real estate

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

define assignment in real estate

What Is an Assignee?

An assignee is a person, company, or entity who receives the transfer of property, title, or rights from another according to the terms of a contract. The assignee receives the transfer from the assignor. For example, an assignee may receive the title to a piece of real estate from an assignor.

Key Takeaways

  • An assignee is a person, company, or entity who receives the transfer of property, title, or rights from a contract.
  • The assignee receives the transfer from the assignor.
  • An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity.
  • The assignee typically will hold the rights of power of attorney only for a specified time or for particular circumstances.
  • Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights.
  • Not all assignment contracts are required to be made in writing, but they often are.

How an Assignee Works

An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity. For example, an executor of an estate may be appointed through a will left by a decedent.

Types of Assignees

Assignee in real estate.

An assignee is the recipient of a title when a deed is signed to confer ownership of property in a transaction. A tenant might choose to transfer their property rights to an assignee who would assume duties for paying rent and tending to the property. There may be limits to the rights and liabilities that are granted to an assignee based on the nature of the transfer or assignment of rights.

For example, an assignee might take on the property rights from a tenant who vacated a rental property, but the tenant may still be liable if the assignee does not make rent payments on time. An assignee who takes title and ownership of real estate might not have certain rights to use the property any way they wish. There may be rights of ingress and egress that must be negotiated with adjacent property owners who hold surrounding land parcels. The assignee could receive certain rights that run with the land when they are granted the title.

Assignment by Power of Attorney

Power of attorney may be assigned to a person to tend to certain affairs for a person while they are out of the country or not capable of taking action for themselves. The assignment of power of attorney can grant broad rights or be limited in scope by the terms set by the assignor. The rights could be for the specific handling of a contract or business deal that the assignor cannot be present for.

The assignee typically will hold the rights of power of attorney only for a specified time or particular circumstances. Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights. It is possible that the terms of power of attorney might allow an assignee to act in their self-interest rather than for the interests of the assignor.

Assignee in an Insurance Policy

In the context of a life insurance policy, interest in a policy can be transferred from the policyholder to a lender or relative by assignment of the policy. In this case, the policyholder is the assignor and the person in whose favor the policy has been assigned is called the assignee.

Assignee in a Contract

When one party to a contract—the assignor—hands off the contract's obligations and benefits to a different party—the assignee—this is known as an assignment of contract. In this situation, the assignee assumes all the rights and responsibilities of the contract from the assignor. All, or a portion, of a letter of credit can be assigned to a third party to pay vendors and suppliers.

Assignee in a Loan

An assignee is a person or a company that buys your loan. For example, an auto dealer that extends credit to individuals may sell their loans to a bank. In this case, the bank is the assignee and the auto dealer is the assignor. If your loan has been sold, you owe money to whoever owns your loan. In the event that responsible parties fail to meet their loan obligations, the assignee has a lien on the vehicle and can repossess it.

Not all assignment contracts are required to be made in writing, but they often are. Assignment contracts may also need to be notarized and witnessed in order to be valid. The assignment of property and collateral for loans must be in writing. Note that not all rights, contracts, or other property are assignable; many contracts, particularly real estate leases and personal service agreements, explicitly prohibit assignment. 

define assignment in real estate

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What Is an Assignor?

Assignor Explained

define assignment in real estate

Definition and Examples of an Assignor

How does an assignor work, assignor vs. delegator.

miodrag ignjatovic / Getty Images

An assignor is a party who transfers rights, property, or benefits to another party called “the assignee.”

An assignor is an original party to a contract who can give the rights, property, or benefits of that contract to another person (the assignee). An assignor can be an individual, group, business, or other entity. Once the assignment of contract is valid, the assignor’s rights to the contract are transferred to the assignee.

Here are a few examples of the role an assignor plays in some common scenarios.

The contract between a consumer with a car lease and a dealership is frequently assigned to a third party. The initial contract is signed between the car buyer and the car dealership when a vehicle is bought or leased. The buyer and the dealership are the two original party members of the contract. The car dealership (the assignor) will sell the loan on the car to a bank (the assignee) in an assignment. The bank now holds the rights to collect money from the car owner in exchange for ownership of the vehicle. The bank notifies the car owner (the “obligor”), and payments are made to the bank instead of the dealership.

In an auto loan scenario, the car dealership is the assignor, the bank is the assignee, and the car owner is the obligor.

Apartment Lease

It’s not uncommon for a tenant to move before the end of their lease. If the original contract allows for an assignment of the lease to another person, tenants can transfer that lease to another person in an assignment. It is more commonly called a lease takeover or lease transfer. Here, the tenant (assignor) transfers the rights of living in the property to the new tenant (assignee). The apartment community is the obligor, the original tenant is the assignor, and the new tenant is the assignee.

Real Estate

It’s also common to see assignments in real estate. One tool real estate investors may use is a real estate assignment contract. This is more commonly known as wholesaling , selling contracts, flipping contracts, or assignment of real estate.

In this type of transaction, a real estate investor finds a property to buy from an owner. They sign a contract for the property at a sales price they both agree to.

The contract language must allow for the contract to be assigned to a third party. If there is no language providing for the assignment of the contract, no assignment can be made.

Next, instead of closing the sale, the real estate investor will find a new buyer for the property at the agreed-upon contract price. What the real estate investor is selling is the right to buy the property from the original owner for the terms agreed on in the contract. In exchange, the real estate investor earns an assignment fee, usually around $5,000.

In this example, the original owner of the property is the obligor, the real estate investor is the assignor, and the end buyer is the assignee.

Generally speaking, all contract rights may be assigned by the assignor. There are a few exceptions, including where:

  • Prohibited by statute
  • The contract bans an assignment of contract
  • Assignment would materially change the risk or alter the duties of the obligor
  • The contract assigned is for personal services

An assignment takes place when the assignor is interested in finding a replacement to fulfill or receive the benefits of the original contract. It may be out of necessity, convenience, generosity, or another reason.

A failed business, for example, may need to find a replacement for the lease agreement on its place of business. Rather than continue to make payments to a landlord, the business (assignor) may be able to find a new tenant (assignee) to take the right of occupying the property in exchange for paying rent to the landlord (obligor). This is only possible if the contract allows for an assignment.

Another reason an assignor may want to transfer rights is for convenience. In a previous example, a car dealership (assignor) sold car loans to a bank (assignee). This frees up the dealership to sell cars instead of service loans. It makes more sense for the bank to service a car loan instead of a dealership doing so.

Each of the parties in the assignment has a role, as shown in the examples given.

The assignor’s role : The assignor is the party that transfers its contractual rights to another party. These contractual rights include both the contractual obligations and the benefits. The assignee steps into the assignor’s role to fulfill the contract with the obligor. The assignor no longer has a role in the contract after the assignment of the contract is complete.

An assignor only acts as an assignor when transferring rights and obligations of a contract to an assignee. In other words, the assignor would continue in its role as promisee (as opposed to assignor) if no assignment was made.

The assignee’s role : The assignee is the party that accepts the contractual rights from the assignor. The assignee can be an individual, group, business, or other entity. The assignee is not an original party to the contract, but steps in to fill the role specified in the contract by the assignor.

Once a valid assignment of rights has been made, the assignee should notify the obligor of the assignment. The assignor no longer has any role in the contract.

The obligor’s role : The obligor is the original party member with a contract with the assignor. When the contract is assigned from the assignor to the assignee, the obligor now owes the benefit (like rent or car payment) to the assignee.

An assignor is similar to a delegator. A delegator frees themselves of the responsibilities of the assignment by delegating them to a third party. However, unlike an assignor, a delegator is not completely free of the obligations (or benefits). If the delegatee fails to perform the duties of the assignment, the delegator is still responsible to perform the duties of the original contract.

Key Takeaways

  • An assignor is the person transferring rights and obligations to an assignee.
  • Assignors relinquish their rights and obligations to an assignee.
  • The original contract must allow for assignments in order for an assignor to transfer rights to an assignee.
  • Alternatively, contracts may be delegated instead of assigned.

Consumer Financial Protection Bureau. " What Is an Assignee of an Auto Loan? " Accessed Sept. 7, 2021.

Texas Land Title Institute. " Insuring Investor Transactions in Texas ." Page 24. Accessed Sept. 7, 2021.

Sam Houston State University. " 3rd Party Rights 4322-4324 ." Accessed Sept. 7, 2021.

define assignment in real estate

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Do You Tip On White Glove Delivery?

What Is A Novation In Real Estate (And When Do You Need One?)

Stacy Randall

If you’re involved in a real estate transaction, a lot of things can change during the whole process. Between the first round of negotiations and the closing date, either party can ask for different terms.

A novation in real estate is when you replace an old contract with a new one due to term changes. Since you can’t just scratch out part of your contract and make the change, you need a legal method. Your real estate agent can help guide you through the process, and a real estate attorney reviews the final contract.

A home purchase is one of the most significant (if not the biggest) purchases you’ll ever make. Therefore, it’s essential to have all your ducks in a row when it comes to the necessary paperwork. The last thing you want is for your deal to fall through because of unclear terms.

What is Novation?

In a short, novation is a legal term that describes switching one obligation or party to another. Instead of just adding to or altering an existing contract, a novation replaces the old agreement with a new legal agreement. A novation requires a valid former contract, a mutual agreement between all parties involved, and the termination of the original contract.

Novation can happen anywhere that valid contracts are formed from the financial market, to the buying and selling of a business, to real estate.

What is Novation in Real Estate?

First, it’s important to understand that just because you need a novation doesn’t mean your real estate deal’s in jeopardy. Instead, it’s quite the contrary — a novation protects you from any confusion surrounding the contract.

When you put in an offer (or accept an offer) on a property, you need a written contract. Your real estate agent ensures that all of the buyer’s and seller’s terms are included in this agreement. Then, both the buyer and seller review the contract and sign it to seal the deal.

A real estate attorney reviews the signed contract to make sure everything is good to go. However, there’s often a long road to travel between signing that initial agreement and the final closing on the home.

And as the saying goes, anything can happen. Therefore, it’s not uncommon for either party to end up requesting changes before the finish line.

When this happens, the agent makes an entirely new agreement, which renders the former contract void. All involved parties look over and sign the new document. Then, a real estate attorney must once again review this newly signed contract.

Types of Novation in Real Estate

There are three main forms of novation to be aware of when it comes to real estate. These are as follows:

  • Standard novation refers to a mutual contract involving two parties. New terms are added to a formal contract, which forms a new contract.
  • Exprossimo describes when three parties are involved in the transfer of rights. The three parties are the transferor, the transferee, and the counterparty. All parties must mutually agree to the new terms of the contract to move forward with the process. Even if one party does not agree, a new agreement must be drafted.
  • Delegation occurs when the contractual responsibilities and benefits of the old creditor are reassigned to a new creditor. This releases the original debtor from their debts to the original creditor and binds them legally to the new creditor, with the same obligations. If the original owner had debts during his/her term, the new owner will assume responsibility for these debts upon delegation.

Examples of Novation in Real Estate

Luckily, novations in residential transactions are somewhat easy to handle since it’s typically just between a buyer and a seller. In some instances, there could be a third party involved, such as a bank or mortgage company. Things can get a little more challenging in these situations, but a good agent can help move things along smoothly.

You need a novation anytime someone wants to change terms in the original contract, no matter how big or small. Additionally, verbal agreements don’t hold up in the long run. Even if both parties mutually agree to a change, it’s imperative that you have a written agreement.

Simply shaking on it without making a new written contract won’t be sufficient evidence or support for later disputes. Therefore, you must get a novation.

Here are a few examples of the most common situations that would require a novation in a real estate deal.

1. The Home Inspection Uncovers Issues

If you’re purchasing a new home, it’s wise to get a home inspection to ensure everything is in proper working order. Although sellers are supposed to fully disclose any issues with the property, sometimes things pop up. If the inspection reveals a major, costly problem, you might want to alter the original agreement.

Of course, several things depend on the wording in the original agreement. But, typically, you can make some choices when a home inspection goes awry.

For example, imagine the home inspection uncovers a significant problem, like mold. Obviously, you don’t want to move into a home with mold, but you might not be ready to walk away. Instead, you can request that the sellers fix the problem, pay for the problem, or you can kill the deal.

If you decide to ask for changes or for the sellers to pay for repairs, it’s time to renegotiate. You would then propose your request to the seller’s agent; if the seller accepts, the agent draws up a new contract.

This new agreement includes all of the new terms in detail. Then, you and the seller would review and sign the new agreement, voiding the old one.

2. The Price Changes

In the example above, if the sellers don’t agree to fix the problem, they might lower the list price instead. A new price (no matter what the reason) makes it necessary to draw up a new contract. Once again, all parties review the changes, sign if they agree, and the deal moves forward.

Another example of a possible price change would be due to issues with the appraisal. If the appraisal comes back with a lower value than the list price, this can be a snag. Your lender might not be willing to lend you more than the home is worth.

However, depending on how eager the sellers are to sell, they might agree to lower the price. Therefore, you would need a new contract to lay out the new price and any new terms. Another possibility is that the sellers disagree with the appraisal and decide to pay for a new one.

If this happens, it could potentially push back your closing date, which is another reason for a novation. (More on this later).

3. A Change in Closing Costs

Similar to a change in list price, if closing costs or other terms change, you will need a new contract. It doesn’t matter why or who makes the call, any variation from the original terms warrants a new written agreement.

The amount of the closing costs could change, or there could be a change in who pays for them. For example, after discovering issues in the home inspection, the seller might agree to cover the closing costs.

In this case, even though the amount of the closing costs is the same, you still need a new agreement.

4. The Names of Involved Parties Change

If any change occurs in who is involved in the deal, you need a novation. For example, a married couple buys a home but then opts to only put one spouse’s name on the deal. There would need to be a new contract with only the spouse’s name on it.

5. The Closing Date Changes

You’ll also need a novation if the closing date changes for any reason. It’s not unheard of for a closing date to bump up, or more likely, get pushed back. Issues with home inspections, financing, and appraisals can delay closing.

There can also be hang-ups with paperwork, or one of the parties could have an emergency. No matter what the reason, if the closing date on the original contract changes, you’ll need a brand new agreement.

What Happens to the Old Contract with a Novation?

If you’re worried the old contract can come back to haunt you, don’t be. A novation completely replaces the former agreement with a brand new written agreement. This means the original contract becomes null and void.

The former contract will no longer provide any valid proof of an agreement. If, after the novation, both parties decide to go back to how things were, you still need a new contract. You can’t simply use the old one.

Related Questions

What is the difference between novation and assignment in real estate.

Unlike a novation, an assignment does not replace the original contract. Instead, it transfers the rights and benefits of one party to someone else. The original party (the assignor) still carries the burden of the initial contract, but the benefits go to the assignee.In this situation, if the assignor fails to uphold their end of the contract, the assignee can hold them liable. The original contract is still valid and enforceable. In a novation, as discussed, a brand new agreement replaces the old one.

What is rescission in real estate?

When you rescind a real estate contract, you can back out of a deal for a variety of reasons. A rescission essentially puts you in the same place you were prior to signing a contract. You may want to rescind if you didn’t understand the terms upon signing, if you changed your mind afterwards. However, whether you are permitted to rescind a contract depends on the specific circumstances.

Are novations just a real estate thing?

Novations are commonly used in real estate, both for residential and commercial transactions. However, they are not solely for real estate deals. Novations are also necessary for business acquisitions, mergers, buy-outs, and other similar transactions. Basically, anytime the terms of a contract change, a novation becomes a probable reality.

More Related Guides

  • What Does It Mean To Buy A House With An Encroachment?

Stacy Randall

Stacy Randall is a wife, mother, and freelance writer from NOLA that has always had a love for DIY projects, home organization, and making spaces beautiful. Together with her husband, she has been spending the last several years lovingly renovating her grandparent's former home, making it their own and learning a lot about life along the way.

More by Stacy Randall

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Assignment of Contract

Jump to section, what is an assignment of contract.

An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.

How Does Assignment of Contract Work?

An assignment of contract is simpler than you might think.

The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.

When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.

In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.

The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.

Check out this article to learn more about how assigning a contract works.

Contract Assignment Examples

Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:

Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.

Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.

Here is an article where you can find out more about contract assignments.

define assignment in real estate

Assignment of Contract in Real Estate

Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .

This process is called real estate wholesaling.

Real Estate Wholesaling

Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.

The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.

This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.

This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.

But how do real estate wholesalers find these properties?

It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:

  • Direct mailers
  • Place newspaper ads
  • Make posts in online forums
  • Social media posts

The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.

Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.

In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.

After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.

Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.

If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.

One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.

On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.

Learn more about assignment of contract in real estate by checking out this article .

Who Handles Assignment of Contract?

The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.

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An Investor’s Guide to Novation in Real Estate

define assignment in real estate

What is real estate novation?

What are the types of real estate novation?

Assignment vs. novation

Commercial and residential real estate novation

Most real estate transactions are complex affairs, and several factors on a contract can change before the deal is closed. For example, either party can ask for different terms or change their demands between the first negotiation session and closing. Since buying a home is one of the most significant and expensive purchases you can make, you should ensure all your paperwork’s information is recorded correctly and ready to go. More importantly, any contract you sign has to be up to date and accurate. If a transaction’s contract has a problem, it could delay or derail the transaction process.

To ensure buyers and sellers are properly protected, you need to understand novation in real estate. In this article, we will explore what novation real estate is, what a novation typically involves, as well as a few examples of what a real estate novation might look like. By knowing all real estate options, you’re able to guarantee transparency and clarity throughout the real estate experience.

What is Novation In Real Estate?

To understand how novation in real estate works, the definition of novation will come into play. In a nutshell, novation means an existing legal contract or obligation is replaced with a new contract of either equal or close to equal (proximate) value. Through novation, an original contract is nullified and eventually replaced with a new contract. All of the benefits, terms, and burdens initially discussed are transferred to the new contract.

Novation is necessary because a new contract must always be redrawn and signed by all involved parties whenever a deal term or element is renegotiated, especially with something as complex and valuable as a real estate transaction. Verbal agreements just won’t cut it, nor will modifying an existing legal contract by scratching out certain words or phrases. Novation sets a new real estate contract as valid and legally binding. It ensures that everyone gets access to the new contract whenever a term renegotiation occurs (which can be frequent for real estate). For example, parties may disagree on the selling price, the mortgage term, the burdens or debt obligations, and so on.

Aside from real estate, novation can also be used in finance contracts, business contracts, and anything where legal terminology is crucially important. Novation’s primary benefit is arguably the nullification of earlier contract versions. Without novation, earlier versions of real estate or other contracts may be used in court to argue ownership, price disagreements, and more. Novation protects real estate investors by nullifying earlier contracts and rendering them legally invalid and unable to be exploited by any party involved.

novation in real estate

Types of Real Estate Novation

Now that we’ve explored what novation in real estate means, let’s dive into the three common types of novations witnessed. Novation is always suggested when changes occur, as “verbal agreements” between a buyer or seller are ill-advised, and simply modifying an existing legal contract by scratching out certain words or phrases is a quick way to increase confusion down the line. Novation in real estate exists to protect all parties involved and is performed in three major ways, which include:

Standard Novation: A Standard novation occurs when both parties in a given transaction agree to a new contract and add new terms to the document. Both parties then sign the new contract.

Expromissio Novation: An expromissio novation is necessary if three parties are involved in the transfer of certain rights. The parties are the transferor, the transferee, and the counterparty. Each party in the transaction has to agree to new novation contract terms if they want to move forward with the transaction.

Delegation Novation: A Delegation novation is needed if a new creditor takes on the benefits and contractual responsibilities for an old creditor. In doing so, the original debtor is discharged from their financial obligations to the first creditor. The delegation novation contract then legally binds the new creditor to the obligations of the debtor. In simpler terms, the debtor stops owing money to the first creditor and then owes the same amount to the new creditor.

Assignment vs. Novation in Real Estate

A common confusion when becoming introduced to novation is its relation to an assignment. Novation in real estate is very similar to assignment in real estate , as both processes can be used to bring at least one new party into an existing contract or real estate transaction. For example, novation makes a new agreement and transfers contractual obligations or rights from an existing party to a new party.

On the other hand, assignment only transfers the benefits and rights of the original contract to the new party or “assignee.” But any burdens, such as debt obligations, stay with the original party per the contract’s terms. In this way, with an assignment in real estate, the assignor or the person transferring property is still legally responsible for any contract terms or burdens.

Because of this major difference, novation and assignment are used for different purposes or objectives. Typically, assignments are used in real estate if someone needs to sublease a rental property to a new party while remaining on the same lease. This contract adjustment can be useful since real estate assignments don’t require a third party’s approval. Novation in real estate does.

Novation in Residential Real Estate vs Commercial Real Estate

Novation can play a key role in residential and commercial real estate transactions, although it also significantly draws out these transactions or negotiations. While the negotiation process might be simple, ensuring all parties have the chance to review updated documents can be a time-intensive process. In residential real estate transactions, the process is a little simpler. Most residential real estate transactions are, after all, conducted between only two parties: the real estate buyer and seller. For this type of deliberation, it’s not difficult to gather all individuals to review the new terms.

Things become much more complicated if novation is used in commercial real estate transactions , which may involve three parties or multiple legal entities more often. If anything is changed in the contract, which happens very frequently in all real estate transactions, but especially commercial real estate transactions, novation is used to produce a new contract ready for signatures from all involved parties.

For commercial real estate transactions, it’s fairly common to see delegation novations taking place to ensure no one is inappropriately taking on or keeping past debts. Expediting the process of closing might take longer for commercial real estate investments, especially for buyers looking to maximize their investment and stay fully aware of future obligations. That being said, no one should rush any real estate transaction, and novations ensure everyone is happy at the closing date and years down the line.

Real Estate Novation Example: Selling Price Adjustment

To make sure you fully grasp novation in real estate, let’s break down an in-depth example of a typical residential real estate transaction that would like to implement a novation. Say that a real estate buyer makes an offer on a house. After placing the offer, they arrange for an in-depth inspection and learn the property’s yard line or borders don’t meet regulations. Even worse, they infringe on the property lines of another adjacent home. In this case, the owner and/or buyer have several options. This would be an example of a standard novation.

For example, the owner could pay for the adjustments to the yard line out-of-pocket. Alternatively, the owner and seller could renegotiate the contract between themselves for a lower price. The buyer would pay a lower price since they would need to redo the yard line instead, covering the cost of that modification after closing. In this instance, the burden or responsibility to adjust the yard line must be placed on at least one party. It all depends on what the buyer and seller decide. A new contract would be drafted that reflects the negotiated plan.

Say that the buyer and seller for the real estate property agree that the buyer will be responsible for modifying the home in exchange for a lower purchase price. Therefore, they draw up a new purchase agreement that includes the revised price using novation. The old agreement is henceforth voided and is no longer valid. The real estate transaction then moves forward to a close using the new contract.

Successfully Closing A Deal

No matter which side of the transaction you are on, make yourself available as the contract approaches closing. Buyers and sellers should be able to promptly answer questions, resolve issues, and finalize any pending requests. This will help both parties successfully close the deal and finish the novation process. If not, the contract could stall and closing could take longer than usual. Remember the key to completion is to focus on staying in touch and finalizing any details.

Ultimately, real estate investors need to know how and when to use novation in real estate transactions. If you buy or sell any property, odds are you’ll use notation at least a couple of times as contract terms shift and as party expectations are adjusted based on things like price negotiations, inspection reports, and so on. Thanks to novation, real estate transactions can be modified relatively quickly, new contracts can be drawn up, and all parties can rest assured that earlier versions of real estate contracts won’t come back to cause them legal trouble later down the road.

When making any big-ticket investment, it’s imperative to guarantee all parties are legally protected. Real estate investors need to know how and when to use novation in real estate transactions to keep information up-to-date, properly navigate financial obligations, and accurately legally protect themselves. By analyzing a few examples and learning how real estate novation operates, real estate investors and sellers can improve their entire real estate experience.

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Assignor Definition: Everything You Need to Know

An assignor definition is an entity that owns rights to a piece of property and then grants those rights to a different entity. 3 min read updated on February 01, 2023

An assignor definition is an entity that owns rights to a piece of property and then grants those rights to a different entity. 

What is an Assignor?

When a person or business owns rights to some type of property, and they then give those rights to another person or business, they are known as an assignor. The person granted the rights is called the assignee.

Assigning rights to property is quite common, and when it occurs, the assignor is allowed to place restrictions on how the assignee can use the property. Before property can be assigned, a contract will need to be created. This contract should name the person or entity who is receiving rights to the property.

In the contract, the assignor should list any limitations that they wish to place on the assignee. If both the assignor and the assignee approve of the language of the contract, they can sign the contract and exchange the property. Assignors can only sell a piece of property if they own property rights .

The sale can be contested if someone else feels that the assignor does not hold property rights. If the sale is contested in court, the assignor will need to provide documentation proving their rights, such as a:

One of the most common situations, when property is assigned, takes place before construction of a home. The assignor buys the property rights and then sells those rights to the assignee for a profit. Depending on the type of property being assigned, different rules and requirements can apply. For example, there are a variety of conditions that must be fulfilled before intellectual property can be assigned. 

Assignor Examples

There are several types of property that can be assigned besides physical property, such as real estate. For example, it is possible to assign contractual rights or intellectual property . However, regardless of the type of property being assigned, the assignor will need to prove that they actually own those rights before the contract can be executed.

When assigning a piece of real estate, the assignor will need to own the property's deed or have land rights. Once the assignment has occurred, the assignee will be responsible for all fees and taxes resulting from the transfer of rights. Although less common than assigning property, it's also possible to assign intellectual property rights, including:

  • Copyrights.
  • Trademarks.

Intellectual property rights can only be transferred by contract. Contractual rights are another type of right that can be assigned. When an assignor transfers their contractual rights to the assignee, this person will be responsible for fulfilling the duties of the contract, even though they are not a named party. However, if it is found that the assignment is illegal or alters the contract in some way, courts usually will not uphold the assignment.

There are a few circumstances where an assignment is prohibited:

  • Personal injury lawsuits.
  • Claims that involve the government.
  • Future wages. 

What is an Assignment of Contract?

An assignment of contract is when a party who is named in a contract grants their rights and responsibilities to a third-party. In most cases, contract assignments occur when the assignor wants someone else to take over their contractual duties. For this to occur, the assignee must be informed of their obligations, as well as their rights.

For an assignment to be successful, there are several factors that come into play. However, the most important part of an assignment is the wording of the contract. In certain cases, it's possible that a contract will expressly forbid assignment, meaning transferring contract rights would be in possible. It may also be possible that a contract will only allow assignment after the third-party has consented.

If you sign a contract to have milk delivered to your house on a daily basis, and the dairy assigns this responsibility to another dairy, your contract would now be with the new company. 

When assigning contractual rights, the assignor should be aware that they may still be liable for breach of contract. Certain contracts will include language that requires that the original party guarantee contractual performance, even if they have assigned their duties to another person. If a contract has this provision, and you are the assignor, you can be sued if the assignee does not fulfill their obligations.

If you need help understanding the assignor definition, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Real Estate Terms

Mortgage Assignment Definition

September 1, 2023

By Dyana Branchen

When the mortgage lender assigns their mortgage and its interest to a new lender, it’s called mortgage assignment . The lender uses an assignment-of-mortgage document to transfer the mortgage legally.

It is important for real estate students and agents to understand how mortgage assignment takes place. As a real estate professional, I will help you define mortgage assignments for your real estate exam.

In this post, I’ll break down the mortgage assignment definition and explain it with the help of examples. Let’s get started!

What Is Mortgage Assignment?

A mortgage assignment is when a mortgage lender transfers a mortgage account and its interests to another lender. Assignment of mortgage is a document that indicates the transfer of mortgage between the lenders. This type of assignment is mostly seen when a mortgage lender sells the mortgage to a new lender.

Mortgage lenders have the right to assign and sell their mortgages to other parties, while borrowers are not. If a borrower transfers their mortgage to another person, it is called an assumed mortgage.

Mortgage lenders aren’t required to inform the borrower when they transfer their mortgages. However, the new lender has to notify the borrower about the mortgage assignment and set the payment schedule with the borrower. If the borrower doesn’t want to work with the lender, they can apply for a new mortgage and pay off the old mortgage.

How Does Assignment of Mortgage Take Place?

Mortgage lenders often assign their mortgages to other lenders to free up money. When a mortgage assignment occurs, the new lender steps in place of the original lender and takes their mortgage obligations. The assignment of mortgage document has the following contents:

  • The legal description of the property in discussion (the collateral)
  • Name of the original lender
  • Name of the third-party (new lender)
  • Name of the borrower
  • The jurisdiction where it was recorded
  • The amount of money loaned originally
  • The date on which the assignment of mortgage becomes valid

After preparing the assignment of mortgage document, the mortgage lender files it in a government office that deals with property taxes, ownership records, and other real estate matters. After the mortgage has been filed and transferred to the new lender, the borrower is notified. The borrower can confirm the sale of the mortgage and inquire about the new lender. They can also negotiate mortgage rates and terms.

Once the original lender has assigned the mortgage to a new lender, they will not receive mortgage payments. The borrower will pay the monthly mortgage payments to the new lender after the assignment of mortgage. However, the original lender will free up capital by assigning the mortgage to a new lender. This will help the original mortgage lender to offer more mortgages and generate more income.

After the borrower has paid the mortgage in full to the new lender, the lender must file a satisfaction of mortgage . After the satisfaction of mortgage has been recorded, the borrower’s property will be free of the lien.

Effects of Mortgage Assignments

When a lender transfers a mortgage, the original terms of the mortgage remain the same. The interest rate, monthly payments, and total payments to pay off the mortgage remain unchanged. The term and rates after mortgage assignment are the same as at closing.

However, some things might change. For instance, the borrower must check the payment method and know where the payments should go. This is important to know as the borrower should make the payments to the right holder of the mortgage.

Another thing that might change after mortgage assignment is the process that the lender will follow if the borrower defaults. Mortgage lenders use different notification methods, which the borrower must be familiar with to avoid confusion. The following are the effects of the assignment of mortgage:

Notice to Borrower

The original lender doesn’t send notice to the borrower for assigning the mortgage. They don’t need the permission of the borrower to transfer the mortgage either. However, the new mortgage holder has to notify the borrower about the mortgage assignment.

Modification

No modification occurs after mortgage assignment. The original features of the mortgage remain the same after the assignment of the mortgage. The mortgage balance, interest rate, and monthly payments will not change.

The changes to an escrow account are also down according to the original escrow agreement. However, if there is a modification, such as an additional payment method, it would be at the request of the borrower and the mortgage lender’s discretion.

Effects on Escrow Payments

Mortgage lenders receive the bills for the property from the municipality. However, when the lender transfers the mortgage to another lender and files it at the local recorder’s office, a copy is sent to the municipality too. After the assignment of mortgage, the taxing municipality sends the tax bills to the new lender’s address.

Mortgage Assignment Example

Alice wants to purchase a property. After making a down payment, she has to pay $175,000 to the seller to purchase the property. Bank-A offers $175,000 to Alice, and she purchases the house. The following is the breakdown of the mortgage:

  • Mortgage balance : $175,000
  • Mortgage term : 15 years
  • Rate : 4.5%
  • Monthly payments : $1,519

Alice has to pay $1,519 to Bank-A every month, which includes the interest and principal. After five years, Bank-A decides to sell the mortgage to Bank B. At this time, Alice has a remaining balance of $119,657.98, which she has to pay to Bank-A.

Bank-A files for the assignment of mortgage documents at the local county office, and Bank-B takes the mortgage from here. Bank-B notifies Alice she has to make the monthly payments of $1,519 to Bank-B now. However, the remaining mortgage term is 10 years, as she has already paid off for the previous 5 years.

Frequently Asked Questions

Mortgage assignment is the process of mortgage transfer from one lender to another lender. The original lender does this transfer to a new lender. Usually, a mortgage assignment is done for selling the mortgage to a third party.

Who Files the Assignment of Mortgage?

The original lender files the assignment of mortgage at the local county’s office. The new lender notifies the borrower about the assignment of mortgage.

What Happens After Mortgage Assignment?

After the mortgage assignment, the new lender takes the role of the original lender. The borrower has to make mortgage payments to the new lender after the mortgage assignment. The rates and terms on the mortgage with the new lender remain the same as they were with the previous lender.

Why Do Lenders Sell Mortgages?

Lenders mostly sell mortgages for two reasons. First, they want to free up capital to provide more mortgages to other borrowers. Second, they want to generate income by selling the mortgage to another lender. The original lender charges a fee from the new lender, and this way, cash is generated.

What Is Assignment Fraud?

Assignment fraud is when a fake company sends a notice to the borrower and acts like a new lender. This happens when the original lender hasn’t assigned the mortgage to any other lender. In this case, there is a chance that the borrower sends payments to the fake company, mistaking it as a mortgage assignment. Thus, it is important for the borrower to confirm with the original lender before making any mortgage payment to anyone else.

What to Know for the Real Estate Exam

A mortgage assignment is when the original lender transfers the mortgage to a new lender. This type of assignment is common between lenders who sell mortgages to each other. Lenders sell mortgages to free up capital and buy more mortgages to offer them to other borrowers. Mortgage assignment doesn’t change anything for the borrower, except that the borrower has to make mortgage payments to the new lender.

Do you now understand how mortgage assignment works? If you are unclear about something, let me know in the comments. Once you’re done, go through these Real Estate Terms  to learn more definitions.

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  23. Mortgage Assignment Definition

    Mortgage Assignment Definition. When the mortgage lender assigns their mortgage and its interest to a new lender, it's called mortgage assignment. The lender uses an assignment-of-mortgage document to transfer the mortgage legally. It is important for real estate students and agents to understand how mortgage assignment takes place.