Payment Takeover Contract: Everything You Need to Know

A payment takeover contract refers to an agreement where a buyer purchases an asset by taking over the loan payments from the current owner.3 min read

A payment takeover contract refers to an agreement where a buyer purchases an asset by taking over the loan payments from the current owner. This may involve the payment of a lump sum in addition to the takeover agreement.

Obligations and Restrictions of the Original Contract

Before agreeing to a payment takeover contract, all parties should understand the obligations and restrictions of the original contract (and lending party) as well as its effects on secondary transactions. Since the buyer agrees to take over the loan payments of the seller, it means the assets were purchased through financing.

Review All Existing Contracts

The financing may have been provided by the asset's original seller or by a third-party lender, which is usually the case with car loans and mortgages. It is imperative that entities intending to enter into a payment takeover contract review and understand all existing contracts relating to the purchase/financing of the asset they are taking over.

Resale Restrictions

Although it is rare for resale restrictions to be placed on assets, they occasionally crop up. For instance, there are restrictions, covenants, and codes on specific real estate properties which limit buyers from reselling the property within a specified time period.

Unlike the sale of an asset, loans are usually not transferable to other parties. Loan agreements usually require the original borrower to completely pay off the loan. If another entity wants to buy the asset, they must get their own financing or pay cash.

Ensure That Ownership and Financing Is Transferable

Whether there are restrictions on the sales agreement or financing agreement, buyers should determine whether the title or ownership of the asset they want to purchase is transferable.

It's acceptable if the asset and financing are transferable and the prospective buyer wants to acquire the asset by taking over pending loan payments. This means the lender recognizes the buyer as being responsible for paying off the loan.