Assumption Overview



CMBS Loan Assumption is the process of purchasing a commercial property whereby a new borrower (buyer) assumes the mortgage obligations and unpaid loan balance of the original borrower's (seller) CMBS loan. Once the assumption is completed the buyer becomes the owner of the property and is bound by the terms of the existing ("assumed") loan. The seller is released from its ties to the property and the existing loan, and is free to reinvest, or keep, the proceeds from the sale.

The assumption allows the two parties to avoid defeasance or prepayment costs and it gives the buyer the opportunity to acquire a loan with more favorable terms than what may be available in the market. Loan assumption is an especially attractive option in high interest rate environments and tight credit environments.

Though assumption is an attractive alternative, the process is long and complex. Due to the technical nature of CMBS pools and their governing documents, the seller is prohibited from selling its property without the approval of the CMBS trust and its servicer(s). Depending on the terms of the CMBS loan documents, the approval process is handled by one or more of the three servicers of a pool — the Primary Servicer, Master Servicer, and Special Servicer. For certain transactions, the approval of additional parties, such as the controlling class representative and the rating agencies, is also required. These multiple layers of bureaucracy create inefficiencies that can delay the process and add more burden to the buyer and seller. In addition, though often cheaper than a defeasance or prepayment, there are costs associated with the assumption and the buyer must provide sufficient funds to pay the seller the difference between the purchase price and the unpaid loan balance.


At Equity Defeasance, we offer a unique Assumption Consulting service to help our clients through the complicated Assumption Process. The process is typically more involved and takes longer to complete than borrowers anticipate. The buyer and seller must satisfy numerous requirements to get the transaction approved and they lack guidance in navigating the process. Equity Defeasance represents the borrower in the transaction and coordinates the entire process from start to finish. We educate our clients on the various requirements of the transaction, act as the single point of communication for the working parties, make sure that all due diligence is completed in a timely manner, and ensure the transaction closes faster than a typical assumption.

Contact us today to find out more about our Assumption Consulting service.