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

If you're not on the mortgage and your spouse dies, you likely have options for keeping the home.

Question

My spouse died and I was not on the mortgage, but I did 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, as of April 19, 2018, have the right to get information about the loan and seek loss mitigation (foreclosure avoidance) options. 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 there is a due-on-sale clause, the mortgage usually cannot 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, 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?)

Protections Under Federal Law

A Consumer Financial Protection Bureau (CFPB) rule should make it easier for you to take over the mortgage. As of April 19, 2018, this federal rule 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 promptly identify and 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 under federal mortgage servicing rules 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 mortgage 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 may be able to:

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

(Learn more about refinancing a mortgage loan in Nolo’s article 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 (the company you make the payments to) to find out if you are eligible. But because you're facing imminent foreclosure, it is recommended that you seek the assistance of a qualified attorney for legal advice about your particular situation. (To learn more about foreclosure in general, visit our Foreclosure Center.)

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