A Letter of Assumption for Debt Obligation

If you're considering assuming another's debt, you are agreeing to make future loan payments on behalf of that person. This process is usually associated with home loans. If you're considering assuming another borrower's debt, you must be prepared to have your credit and finances checked, as the lender will want to verify that you can afford the loan.

If you are willing to assume another's loan, you are stating that you're willing to maintain payments on that loan until it is paid in full. Depending upon the debt assumption -- or assignment -- agreement, you may or may not "release" the other from the debt. For example, if you're assuming a home loan, the title is transferred to your name, you assume the payments and the other party no longer has responsibility toward the loan. This isn't always the case, however; review loan terms carefully before signing.

You must include the basic terms in your debt assumption letter that makes it clear to all parties what you intend to do. Include the date, payment, term, account number and contact information, as well as your understanding of the future ownership of the property. If the lender is not releasing the original borrower from the debt, but is still expecting you to make timely payments, include a statement about that condition. Each party must sign the letter, including the original borrower and the lender.

Prepare to have your credit and finances checked as if you were the original borrower. In addition to providing permission for the lender to run your credit, you may need to provide documents such as tax returns, pay stubs and investment statements to prove your eligibility. Understand that failure to make timely payments on assumed debt will damage your credit, and depending upon the debt-assumption agreement, possibly damage the original borrower's credit.

Lenders assign debt more often than do borrowers, and this may manifest itself through a collection agency. When the creditor assigns a debt to a third party, the borrower makes payments to the third party instead of directly to the lender. The lender must notify the borrower that the assumption has taken place, and usually the terms are exactly the same. The only difference is that the borrower makes the payments to the third party.