Assignee
An assignee is an individual or entity to whom a right, interest, or property is legally transferred. In the context of real estate, this role emerges when a contract, lease, or mortgage is “assigned” from an original party (the assignor) to a new party (the assignee). The assignee steps into the shoes of the original party, assuming the rights and, in many cases, the obligations associated with the agreement. This transfer allows flexibility in contracts, allowing parties to exit agreements or transfer benefits without cancelling the underlying contract itself.
Purpose and Function
The primary purpose of designating an assignee is to facilitate the transfer of contractual rights and responsibilities from one party to another, ensuring the continuity of an agreement.
- Transferring Contractual Rights: The core function is to legally empower the assignee to receive the benefits originally intended for another party. For example, in a mortgage assignment, the new lender (assignee) gains the right to collect payments and enforce the lien.
- Enabling Exit Strategies: It allows the original party (assignor) to exit a contract while keeping the contract valid. This is common in commercial leasing, where a business might sell its operations to another company, making the new company the assignee of the lease.
- Facilitating Investment: In the secondary mortgage market, the role of the assignee is crucial. It allows financial institutions to purchase bundles of loans, providing liquidity to the original lenders, who can then issue new loans.
How It Is Used
The concept of an assignee is applied across various real estate scenarios, each governed by the specific terms of the contract being assigned.
- Wholesaling Real Estate: In this investment strategy, a “wholesaler” enters into a purchase contract with a seller, and then assigns that contract to an end buyer (the assignee) for a fee. The assignee then closes on the property under the terms of the original contract.
- Lease Assignments: A tenant who wishes to leave a lease early might find a replacement tenant. If the landlord agrees to an assignment rather than a sublease, the new tenant becomes the assignee and takes over the lease directly, paying rent to the landlord.
- Mortgage Transfers: When a bank sells a mortgage loan to another institution or government-sponsored entity like Fannie Mae, the purchasing entity becomes the assignee. The borrower receives a notice of assignment, instructing them to direct future payments to the new loan servicer.
Importance in Real Estate Transactions
Understanding the role of the assignee is vital for navigating complex transactions and protecting one’s interests during a transfer of rights.
- Liability Clarity: For all parties, it is critical to understand who is liable. In some assignments, the assignor remains secondarily liable if the assignee defaults (unless a “novation” releases them). Knowing whether you are fully off the hook or still potentially responsible is a key legal distinction.
- Due Diligence for Assignees: An assignee must perform thorough due diligence, because they generally accept the contract “as is.” They cannot enforce rights that the original assignor did not have, nor can they typically change the core terms of the agreement without the other party’s consent.
Market Liquidity: The ability to name an assignee keeps the real estate market fluid. It allows contracts to be traded and valued as assets, which is particularly important in commercial real estate and mortgage lending, where ownership and servicing rights frequently change hands.
