If successors of interest have a strong desire to keep the property in question within their family, they have the legal right to acquire the mortgage balance from the deceased.
In some scenarios, transfer of the mortgage may not be necessary at all. If, for example, a married couple took out a mortgage together, the surviving partner has the responsibility to continue payments on the property as dictated by the terms of the agreement.
If the surviving spouse is unable to fulfill the original terms of the mortgage due to financial hardship, it is possible for the mortgage lender to provide modification options that change the original terms of repayment, perhaps to reduce monthly payments in exchange for a more extended repayment cycle. In a scenario in which only the deceased individual was listed on the mortgage, the inheritors of the estate will be forced to either acquire the mortgage either in its original state or via modification and the remaining debt or allow the lender to foreclose on the property.
Because the servicer must treat a successor in interest as a borrower, the servicer has to, among other things:. Getting a modification could help you avoid a foreclosure if you can't afford the current monthly payment amount. Though, the servicer might require you to assume the loan become personally liable for the debt obligation as a condition of a loss mitigation offer.
A successor in interest, like an original borrower, is also entitled to enforce some provisions of federal mortgage servicing laws, including many of the loss mitigation procedural protections. Generally, these protections and servicing obligations apply to most mortgage loans, including first or subordinate liens on one-to-four unit principal residences.
Certain entities, though, like the Federal Deposit Insurance Corp. If you've received property through an inheritance or in one of the other ways mentioned in this article, but your servicer is refusing to give you information about the loan or otherwise help you, consider talking to an attorney who can advise you about what to do in your situation.
State laws or bankruptcy laws might also be applicable in your circumstances. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising.
In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. This means that before any assets can be passed onto heirs, the executor of your estate will first use those assets to pay off your creditors. Unless someone co-signed the loan or is a co-borrower with you, nobody is required to take on the mortgage.
However, if the person who inherits the home decides they want to keep it and take over responsibility for the mortgage, there are laws in place that allow them to do so. Or, the surviving family may make payments to keep the mortgage current while they make arrangements to sell the home. If, when you die, nobody takes over the mortgage or makes payments, then the mortgage servicer will begin the process of foreclosing on the home.
Typically, when a mortgaged property transfers ownership, a due-on-sale clause, or alienation clause , requires that the full loan amount be repaid right away. There is an exception to this situation, which is when the mortgage has a co-signer.
The servicer should provide you with information about how to continue making payments, and what your options are for assuming the loan. If your situation is more complex or you expect conflict among the heirs, it may be a good idea to speak with a lawyer. One option is to simply sell the home to pay off the mortgage, and distribute any leftover funds from the sale to the heirs as dictated by the will or the laws in your state. If there was a reverse mortgage on the property, the loan amount becomes due after the death of the borrower.
Otherwise, they can sell the home or turn the deed over to the reverse mortgage servicer to satisfy the debt. You may need to provide a way for the heir to afford not just the mortgage payments, but also the upkeep, property taxes and homeowners insurance.
If the home belongs to an association, staying current on homeowners association HOA payments is also imperative. You can provide these funds by leaving your heir other assets such as the cash in a payable-on-death savings account or by naming them as a beneficiary on a life insurance policy. You could also consider funding a trust with life insurance.
If the proceeds from selling the home exceed the debts owed, then whoever was chosen to inherit your house will get the excess. Again, life insurance can help here. It can repay your debts at death so your heir can inherit your home. Remember, your estate does not have to pay off your mortgage. Since your mortgage is secured by your home, the mortgage servicer can foreclose and sell the home to get back the money owed.
These payments might come from the estate, or from an account that the deceased designated as payable on death to the heir. Payments could also come from life insurance proceeds. Tip: Payable-on-death accounts do not have to go through a lengthy probate process before heirs can access funds. That said, if the estate has other debts besides the mortgage, creditors may have a claim to assets in a payable-on-death account.
Some people buy mortgage protection insurance to pay off the loan when they die, but experts usually say premium dollars are better spent on conventional life insurance. An heir who cannot afford the mortgage but wants to keep the home may be able to refinance into a lower monthly payment.
Here are some possibilities:. The caveat is that refinancing will require the heir to qualify for the new mortgage , so they will need good credit, a steady income and a good debt-to-income DTI ratio. If the home has appreciated since the deceased purchased it or last took out a mortgage against it, then selling the home may be a good choice, especially if the home has more than one heir. If the home is worth less than the mortgage balance, the executor or heir will not be able to sell the home, unless the lender agrees to a short sale.
This means they will accept a sales price below what the deceased owed on the mortgage.
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