Catherine Schaeffer, Dansco Realty Group
I’ve had questions about what happens when someone inherits a home with a mortgage. First, I’d recommend seeking advice from an attorney who specializes in real estate and/or estate planning, especially if there are multiple heirs.
When you pass away, your mortgage doesn’t suddenly disappear. Your mortgage lender still needs to be repaid and could foreclose on your home if that doesn’t happen. In most cases, the responsibility of the mortgage will be passed to the beneficiary of the home if there is a will.
If you applied for your mortgage with a co-borrower or co-signer, the other party must continue to pay the loan.
What happens to a mortgage if someone dies without a will or co-borrower/signer?
If you die without a will or trust, the responsibility falls to the executor of your estate who should keep making payments using funds from your estate while the home’s fate is sorted out.
What happens to a mortgage when it’s divided between multiple heirs?
When multiple heirs agree to assume the mortgage, they become co-borrowers and continue making mortgage payments. When only one heir wants to keep the property, they can buy out the other heirs’ shares.
What happens to a reverse mortgage when a borrower dies?
When a borrower of a reverse mortgage dies, any co-borrowers will still receive the loan benefits, assuming the co-borrower meets all the agreement requirements. If there is no co-borrower, the borrower’s spouse (if married) may remain in the home if they can repay the reverse mortgage loan.
If there is no spouse, the beneficiaries or heirs of the deceased reverse mortgage loan holder must pay off the loan to keep the home. Heirs will receive a due and payable notice from the lender, and then they’ll have 30 days to buy, sell, or turn the home over to the lender to pay off the balance.
Inheriting property with a mortgage
Many mortgages include a due-on-sale or due-on-transfer clause that requires full repayment of the loan in the event of a change in ownership. However, federal and state laws override those clauses in this situation, mandating a lender to work with a surviving spouse or family member who inherits a mortgaged home.
There are a few ways to manage your newfound asset:
• Assume the mortgage: If you want to assume the loan, you can work with the servicer to transfer the loan. Keep in mind that there might be a fee associated with assuming the mortgage.
• Refinance the mortgage: Some lenders are willing to be flexible if you’re not in the financial position to assume the loan but don’t want to sell. You might be able to refinance the mortgage.
Do heirs need to requalify the mortgage?
There’s an exception to this rule if you inherit a home. Heirs don’t have to requalify for the mortgage on the home they inherited.
Questions? Give me a call at 480-650-3444.