Your loved one has just passed away. Though you’ve probably got a million other things on your mind, one important question you’ll have to grapple with is, “What happens to the house?”
When a homeowner dies, who inherits 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?
Who Takes On Your Mortgage Debt When You Die?
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. 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.
Taking Over A Mortgage On An Inherited House
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 your loved one 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’ll be responsible for taking over sole responsibility on the mortgage.
How To Get Information 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.
I Just Inherited A House. What Are My Options?
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.
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.
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 and creating a will can help avoid disputes and ensure that any dependents you have will be provided for in the event of your passing.
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.
Though you don’t have to worry about one of your living loved ones suddenly being stuck with the bill on a mortgage that they didn’t originally sign onto, you still should take some time to consider what you and your family want to do about your home when you eventually pass away.
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