If I'm Not on the Mortgage, Can the Bank Foreclose After My Spouse Dies?

Question

My spouse died, but I wasn't a party to the promissory note or mortgage on our home. I did, however, get title to the property from being named as the heir in the will. The bank sent a notice of intent to foreclose. What can I do to keep the house?

Answer

Because you inherited the house from your spouse, you're likely eligible to assume the loan under federal law. You also, under federal law as of April 19, 2018, have the right to get information about the loan and seek a loss mitigation (foreclosure avoidance) option, like a loan modification.

Alternatively, you might be able to refinance the loan.

Due-on-Sale Clause: The Full Loan Balance Becomes Due

It's possible that the reason the lender sent a notice of intent to foreclose is because of a “due-on-sale” clause in the mortgage. Mortgage contracts often contain this kind of provision. A due-on-sale clause states that if the property is sold or conveyed to a new owner, then the full loan balance will be accelerated and the entire balance of the loan must be repaid. If the contract has a due-on-sale clause, the mortgage usually can't be assumed, but there are exceptions (see below).

Assuming the Mortgage Upon Your Spouse's Death

Even if there is a due-on-sale clause in the mortgage contract, assumption is permitted under certain circumstances. The federal Garn-St. Germain Depository Institutions Act of 1982 prohibits enforcement of a due-on-sale clause in certain cases, like when the transfer is to a relative upon the borrower’s death.

Also, be aware that while federal law generally preempts state law, the federal Garn-St. Germain Act gave states that had prior due-on-sale restrictions three years to reenact or enact new restrictions, though only certain states acted within this time period. In those states, the due-on-sale provisions in documents are not preempted by federal law. (To find out the law in your state, which might provide you with more protections, talk to an attorney.)

(Learn more mortgage assumptions and due on sale clauses in our article Avoiding Foreclosure: Can Someone Else Assume (Take Over) the Mortgage?)

Loss Mitigation Protections Under Federal Law

As of April 19, 2018, federal law requires servicers to communicate with and provide protections to family members who inherit the home if the borrower dies.

Specifically, under the rule, the servicer must communicate with those who receive property:

• upon the death of a relative or joint tenant
• as a result of a divorce or legal separation
• through certain trusts, or
• from a spouse or parent.

These people are called “successors in interest.” The successors in interest are entitled to the same protections against foreclosure under federal mortgage servicing laws as the original borrower. Basically, the servicer must treat the successor in interest as a borrower—even if the successor is not listed as a borrower on the mortgage loan account. This means that a successor in interest is entitled to information about the account and may apply for a loss mitigation option, like a loan modification, just like an original borrower could. Though, the servicer might require the successor in interest to assume the loan as a condition of a loss mitigation offer.

A successor in interest, like an original borrower, is also entitled to enforce certain provisions of the servicing rules, including loss mitigation procedural protections. (To learn about federal loss mitigation procedural protections, see Federal Laws Protecting Homeowners: Foreclosure Protections.)

Refinance the Loan

Another potential option that would allow you to stay in the house is to refinance the loan. You will have to rely on your own credit and finances to obtain the new loan. The lender will examine your income, credit, assets, employment history, and residence history.

If you qualify for a refinance, not only will you be able to stay in the home, you might be able to:

• get a lower interest rate
• extend the loan term, and/or
• lower the monthly payment.

(To learn more about refinancing a mortgage loan, see Refinancing Your Mortgage in Today's Market.)

Hiring an Attorney

If you want to assume the loan, generally you should contact the lender or loan servicer to find out if you're eligible. But because you're facing imminent foreclosure, it is recommended that you seek the assistance of a qualified foreclosure attorney for legal advice about your particular situation as soon as possible. A lawyer can tell you whether the law allows you to assume the loan, help you explore loss mitigation options, and fight the foreclosure in court, if necessary.