What Happens To A Mortgage When The Borrower Dies?
Preparing financially and legally for your own death probably isn’t the most uplifting activity, but the reality is that it’s an important task, especially if you have a spouse or dependents you want cared for when you’re gone.
Because each state has different rules on how title transfers, either by will or probate, it’s important to talk to an attorney and determine your state’s laws and what you need to do based on the way you want your successor to hold title.
Who Assumes The Mortgage Payments When Someone Dies?
There are a few different people who could possibly inherit your title, depending on who you indicated in a legal will: a spouse or co-borrower, a co-signer or a designated beneficiary.
Should you have a surviving spouse, federal law allows them to take over the mortgage, rather than paying the full balance back to the mortgage company, assuming they’re able to provide proof of financial ability and credit-worthiness.
Should you leave your title to a successor, it’s important to remember that this individual only inherits the title of your home, not the mortgage. Until the inheritor goes through the assumption process, there is no personal obligation on that individual to make the loan payments. In other words, that individual’s credit isn’t linked to the payments needed to make the loan, so they aren’t legally bound to pay the existing loan amount.
The Difference Between An Heir And The Executor Of Estate
It should be noted that there’s a difference between an heir and the executor of an estate, because only one has the authority to make final decisions on an estate.
The heirs are those who may receive money under the will, but they don’t have power over the estate or the sale of assets. Usually these individuals are family members or someone the client had listed as beneficiaries in a will.
The executor of estate is designated to administer the estate and make sure all claims are paid and that the remaining property goes to the heirs. Because of the power an executor holds, an executor can consult with heirs regarding the estate or sale of assets but isn’t obligated to do so. The executor has the ultimate authority to make final decisions concerning the estate.
When there is a larger family concerned, often one heir, or a dependent of the client, will be made the executor of estate, while any other dependents remain heirs. Should there be a dispute between the executor and heir(s), a judge can make a final decision on the estate.
How To Handle A Mortgage As An Heir Or Executor
Whether you’re the heir, the executor of estate or both, you’ll need to decide how to proceed with managing the house and transferring the mortgage after the death of a loved one. You can choose to move forward with any of the following options:
- Resume making monthly loan payments on the property.
- Sell the home and divide the money from the sale between the heirs.
- Pay off the remaining mortgage balance.
- Allow the mortgage lender to foreclose on the home.
- Refinance the mortgage into your own name.
When To Notify The Mortgage Company Of A Death
As the heir or executor of state, it may also be your responsibility to inform the mortgage company of the death of your loved one. You should let them know as soon as possible, but typically you have 30 days to do so. Notifying the mortgage company is the first step in the process of determining how to handle a home loan after death.
Determining Who Will Assume Your Mortgage
Perhaps the most important thing you need to do when making financial and legal decisions about managing your assets after death is to get everything in writing.
By establishing a clear-cut will, you’ll ensure your home will pass to your designated relative or heir and that you have a designated executor who can be the ultimate decision maker. However, the decision maker still isn’t liable for the loan until they go through the assumption process.
For this reason, communication is key when determining who will become the executor of your estate. Be sure to have an open and honest conversation with your heir or beneficiary and to make your intentions known. It’s also helpful to make sure they know where and how to find your mortgage documentation.
Depending on what state you’re in, the inheritor may need to go to court for probate to ensure they’re appointed as the executor and have the right to make decisions on the estate.
Only one person can be named the executor, so if a deceased family member had multiple dependents or beneficiaries and no designated executor, the courts will try to ensure that each person is represented when considering the estate.
What Happens If No One Assumes The Home Loan?
If upon your passing, no one has been designated to inherit the loan and no one pays, the lender will still need to collect the debt. Therefore, the lender usually ends up selling the home to recoup the debt. This means if someone intends to keep the home, they must continue to pay the mortgage.
It’s important to note that lenders don’t automatically require full repayment of the loan or initiate foreclosure upon a client’s passing. The client’s family is more than welcome to send in payments to keep the loan current and in good status.
The best thing to do upon the death of a family member is to first contact the servicer of the loan. Servicers typically require a death certificate and verification that you’re the inheritor of the house.
Talk To A Home Loan Expert About Your Options
It’s important to speak with a mortgage expert if you have concerns about what will happen with your home loan and your house upon your passing. Rocket Mortgage® offers various options to clients and clients’ family members when they inherit a home.
For example, if a client dies and someone wants to pay the loan but doesn’t have the ability to do so, Rocket Mortgage can often offer loss mitigation modification options, completed in conjunction with an assumption, to put the loan in the heir’s name while working to make the payment more affordable.
Assumption options are also available to heirs who want to pay the loan’s current payment and have that payment reflected on their credit.
If the heirs want to assume the loan so that the payments they make will appear on their credit, they are entitled to do so without becoming financially responsible for the loan. Until an assumption takes place, no one is responsible for making payments on the home in the eyes of the lender or the credit bureaus. If a payment isn’t made, the home will go into default, and foreclosure could begin.
The Bottom Line
There are a lot of factors that go into these types of preparations. It’s important to consider how your decisions today will affect your loved ones when you’re gone.
If you’ve assumed the mortgage of a loved one who has passed, you have options for handling their home loan – including refinancing. Choosing to refinance may be a good idea if you want to keep possession of the home, but are looking to make lower monthly payments or for a lower mortgage rate. Learn more about refinancing an inherited mortgage with our helpful guide.