Who’s Responsible For A Mortgage After The Borrower Dies?

When a homeowner dies, inheritance of the home is typically decided by a will or probate. But what about a home that has a mortgage on it? Are your next-of-kin responsible for your mortgage debts when you die? What happens to surviving family members who still live in the home in question?

Below, we’ll take a look at what happens to your mortgage when you die, how you can plan ahead to avoid mortgage issues for your heirs and what you need to know if you’ve inherited a home after a loved one has passed.

Typically, debt is recouped from your estate when you die. 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.

With mortgage debt, however, the process is different.

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. Most commonly, the surviving family who inherited the property makes 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. However, there are laws in place to protect heirs of property that allow them to take over the title of the home (meaning that they’re the legal owner of the home) without triggering the due-on-sale clause.

So, if you’re the heir to a loved one’s house after their death, you can assume the mortgage on the home and continue making monthly payments, picking up where they had left off.

Additionally, heirs should be able to continue making payments to keep the mortgage current, even if the account hasn’t yet been legally assumed by the heir.

There is an exception to this situation, which is when the mortgage has a co-signer. If someone co-signed the mortgage loan, regardless of whether they have any right to ownership over the property, they take over sole responsibility on the mortgage.

To take over the mortgage on an inherited house, you’ll first need to talk to the servicer of the loan and let them know that you’ve inherited the property. You’ll likely need to provide proof of the person’s passing, as well as documents showing that you are the rightful heir to the home; the servicer will let you know what they need from you.

The servicer should provide you with information about how to continue making payments, and what your options are for assuming the loan.

Once you’re in contact with the mortgage servicer, you’ll need to decide what you want to do with the house. If there are multiple heirs or you aren’t the executor of the will, this could get complicated, especially if the people involved can’t come to an agreement.

We’ll talk about what to do when the situation is fairly straightforward, like an adult child inheriting a deceased parent’s house or a surviving spouse taking over a loan they weren’t originally signed onto. If your situation is more complex or you expect conflict among the heirs, it may be a good idea to speak with a lawyer.

Sell The House

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 you want to retain the home, you’ll need to work with the servicer to get the mortgage transferred to you.

If your finances can’t handle the monthly mortgage payments as the loan is currently set up, you can ask the servicer about loss mitigation options that could help you stay in the home and avoid foreclosure, such as getting a loan modification.

If there was a reverse mortgage on the property, the loan amount becomes due after the death of the borrower. If the heir to the home wants to retain the property, they’ll have to pay back the loan. Otherwise, they can sell the home or turn the deed over to the reverse mortgage servicer to satisfy the debt, resulting in reverse mortgage foreclosure.

Refinance The Home

Selling the home is an easy solution when there are multiple heirs and no one wants to retain the property. But what do you do if you want to keep the home, but your co-inheritors don’t?

One option is to simply buy out the other heirs to the property. Of course, not everyone has the funds readily available to do this.

A refinance can help free up funds that you can use to buy out the other heirs and assume ownership of the property. Keep in mind, however, that this means all mortgage payments will also be your responsibility.

The time after the death of a loved one can be fraught as the family tries to figure out what is to be done with everything the deceased left behind. Planning ahead can help avoid disputes and ensure that any dependents you have will be provided for in the event of your passing.

Mortgage Protection Insurance

One option for avoiding issues with your mortgage if you die is to purchase mortgage protection insurance, also sometimes called mortgage life insurance. Unlike regular life insurance, which is paid to your beneficiaries, MPI is paid directly to your mortgage lender to cover some, if not all, of your remaining loan.

Mortgage life insurance can be beneficial if you want to ensure that your loved ones won’t be burdened by any outstanding mortgage payments left by you after your death. However, there are a few drawbacks to consider. For starters, many insurers require you to enroll in mortgage protection insurance within a few years of closing on your home, meaning that older homeowners who have lived in their home for years may have difficulty obtaining a policy. The monthly premiums also tend to be expensive. Depending on their circumstances, some homeowners may prefer to invest that money in a traditional life insurance policy instead, which will allow their heirs the flexibility to use the payout as they see fit.

Estate Planning

Having a will allows you to dictate who receives what out of your estate when you die and is an important tool for homeowners who want to ensure that their home is transferred to the person or people they want it to go to.

Creating an enforceable will is especially important if you have loved ones you aren’t related to who you’d like to have a right to the home. Without a will, inheritance will be determined by your state’s laws, which generally only consider the deceased’s legal relatives as eligible to receive portions of the estate. If, for example, you have a live-in partner who you aren’t married to and isn’t a co-owner, they could lose the home when you pass away if you don’t have a will that includes them.

During estate planning, you may also consider refinancing your home to lock in a lower interest rate. This may help lower the financial burden of any outstanding mortgage payments your heirs assume after your passing.

Pondering our own passing or the passing of a loved one is never easy. But taking steps now to plan for the eventual transfer of your property, as well as any outstanding mortgage payments, can help give both you and your heirs peace of mind. Speaking with an estate planner or financial adviser can help you decide what options may be best for your personal situation.

If you’re considering refinancing a mortgage as part of your estate planning or because you’ve inherited a home from a loved one, we can help. Start your application and Rocket Mortgage^® can help you navigate your options during this sensitive time.