But what happens to the mortgage you have on your home after you pass away? Understanding the process of how assumption of mortgage after death works, and planning for it now, can protect you and your loved ones in the future. Learn the ins and outs of what happens to a mortgage after you die, how mortgages differ from other types of debt, and more here, as we cover everything you need to know about mortgages and estate planning.
Assumption of Mortgage After Death of a Spouse. Traditionally, any outstanding debt you owe would be paid off out of your estate after you pass away. However, the process is slightly different when it comes to mortgage debt. That said, if you leave a property to someone and they wish to keep it, they would need to take over the mortgage.
There are laws set up that offer guidance and provisions for how this should happen. If there is a co-borrower on the mortgage: The surviving co-borrower on a joint mortgage would be responsible to repay the debt. Typically, co-borrowers equally share any burden of debt for a mortgage. Inheritors will generally need to complete the assumption process in order to pay off a mortgage if they plan to keep the home. In this case, the surviving spouse would become the sole owner.
If your estate cannot pay off the mortgage in its entirety, your spouse will become responsible for the remaining mortgage if he or she wants to keep the property. As we briefly touched on, mortgage debt is handled very differently than paying off other types of debt after death is. In others, like a personal loan, there is no legal recourse for a lender.
Home loan: As home loans are long-tenured products, lenders structure them in a way that their recovery is not affected in case borrowers die. Lenders ensure that there is a loan co-applicant. If one of the co-borrowers dies, the responsibility to repay the loan is on the other. The co-borrower who is alive will need to continue repaying the loan.
The lender will remove the deceased from the loan. If the repayment was linked to the bank account of the deceased, the lender will change it. If the borrower had purchased a group life insurance policy from the lender, the latter would approach the insurance company for a claim. The lender will reduce the loan depending on the insurance payout. The co-borrower will continue to pay the remaining amount.
If the claim amount is higher than the loan outstanding, the insurer will pay the additional money to the nominee. If a borrower had individual life insurance, the nominee could claim it and settle the loan. If there are no co-borrowers, the lender will first resort to the life insurance option. If the insurance claim is not adequate to pay the entire loan, the lender will provide some alternatives to the legal heirs. The first option for the family is to repay the loan by arranging money.
Grow Your Legal Practice. Meet the Editors. Federal law can help you keep a mortgaged home that you inherit. Federal Law Also Helps Heirs Deal With the Servicer After a Loved One Dies In some cases, heirs have found it difficult, if not impossible, to deal with the servicer and get information about the loan, like how much is due and where to make the payment, after the borrower dies.
A successor in interest is someone who receives property through: a transfer by devise like in a will , descent, or operation of law on the death of a joint tenant or tenant by the entirety a transfer to a relative after the death of a borrower a transfer where the spouse or children of the borrower become an owner of the property a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property, or a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which doesn't relate to a transfer of rights of occupancy in the property.
Protections for Successors in Interest Because the servicer must treat a successor in interest as a borrower, the servicer has to, among other things: promptly identify and communicate with surviving family members and others who have a legal interest in the home and provide information about the loan and if appropriate how to qualify for available loss mitigation options, like a modification.
Getting Help 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.
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