I have an offer from a friend.
They currently have a Loan with a house that they own(no mortage,etc) as collateral.
They would like me to take over the Loan in exchange for the property, i.e. I pay off the loan(for them) and I own the house.
Is there a clause in loans with collateral that prevents this? And if not, what kind of contract/deed should we use?
This is probably a bad deal for you. Essentially they are giving you their equity in the house in return for the loan. Which might be a good deal or a bad deal, depending on the terms of the loan and the amount of equity. You are now paying interest on the loan in return for that equity. I'd be willing to wager that the "present value" of that deal (the amount of equity you get compared to the interest you'll pay) is a bad deal for you.
Also, the day after this deal is closed, you could sell the house, pay off the loan, and keep the remainder.
It's also entirely possible that the bank holding the loan will not let them sign over the house without paying off the loan. They would probably want a new loan in your name (with different terms) at a minimum.
The proper way to structure this deal is for them to sell you the house, use the proceeds to pay off their loan, and you get a loan to cover the purchase.
Either way, I would speak to an attorney, but I suspect you'd want some sort of sales document outlining the transaction.
