If you inherit property after a loved one dies, California law ensures that you’re able to get mortgage information from the loan servicer, and gives you the right to seek a loan assumption or modification, if necessary.
Federal law also provides protections against foreclosure for heirs after a borrower’s death, as well as after transfers that arise through divorce and certain other situations.
In California, if you’re legally considered a “successor in interest,” you get certain rights—like the right to receive information about a mortgage loan and protections against foreclosure—even if you weren’t a party to the original loan contract.
Under California law, the following relationships to a deceased borrower qualify as a successor in interest:
Additional qualifications. To qualify as a successor in interest, you must have lived in the subject property for the six months before the borrower’s death and currently live in the home. Also, the subject mortgage must be a first-lien mortgage or deed of trust, the property must have been the principal residence of the deceased borrower, and the dwelling can’t have more than four dwelling units.
How to prove you’re a successor in interest. After telling the servicer about the borrower’s death, you get 30 days to provide a death certificate to the servicer. You also get 90 days to show documentation that proves your relationship to the deceased borrower and proof of occupancy.
Under the law, successors in interest get:
The right to receive information about the loan. Once the servicer confirms that you’re a successor in interest, it gets ten days to give you a letter with certain information about the loan, including the balance, interest rate and any reset dates/amounts, balloon payments (if any), prepayment penalties (if any), default or delinquency status, the monthly payment amount, and payoff amount.
The right to potentially assume (take over) the mortgage. All successors in California have a right to apply for an assumption of the loan, as long as the loan is assumable. The servicer may evaluate your creditworthiness, including your credit score, when considering you for an assumption.
Protections against foreclosure. If you tell the servicer that you're a successor in interest before it records a notice of default, which is the first step in a California nonjudicial foreclosure, the foreclosure can’t start while the servicer confirms your successor in interest status. (You'll need to provide a death certificate and proof of your relationship and occupancy before the 30-day and 90-day deadlines though.)
The right to apply for a foreclosure prevention alternative. You may submit an application for a foreclosure prevention alternative, like a loan modification, and the foreclosure can’t go forward until the servicer evaluates your application.
The right to sue. If the servicer violates the law, you may sue for an injunction to stop the foreclosure sale. If the servicer or lender violates the law by conducting a sale and records a trustee’s deed upon sale, you may sue for economic damages and attorneys’ fees, as well as potentially the greater of treble actual damages or $50,000 if the violation was intentional or reckless. This right is similar to the private right to sue found in California’s Homeowner Bill of Rights. (Be aware that if the servicer complies with the Consumer Financial Protection Bureau regulations—see below—the servicer is considered to be acting in compliance with California law.)
This California successor in interest law will sunset January 1, 2020, unless extended.
Federal law also provides protections for heirs and others.
As of April 19, 2018, a Consumer Financial Protection Bureau (CFPB) rule requires servicers to treat family members, heirs, or other parties—also known as “successors in interest”—who have a legal interest in the home as though they are borrowers on the loan.
Successors in interest under federal law include someone who receives property:
Under the rule, the servicer must have procedures in place to promptly identify who qualifies as a successor in interest. Confirmed successors in interest are then entitled to receive information about the account and may apply for loss mitigation (a foreclosure prevention option). Also, under a separate 2014 rule, someone who inherits the home may be added to the mortgage as an obligor (a borrower) without triggering the Ability-to-Repay rule. (To learn more, see Taking Over the Mortgage When Your Loved One Dies.)
Successors in interest are also entitled to certain foreclosure protections under federal law. Basically, if you (as a successor in interest) submit a complete application for a foreclosure prevention option to the servicer, the foreclosure may not start—or proceed to judgment or sale—while the application is pending. (To learn about federal foreclosure protections, see Federal Laws Protecting Homeowners: Foreclosure Protections.)
But the foreclosure won’t pause while the servicer verifies that you’re really the borrower’s successor.
Mortgages and deeds of trust often have what’s called a “due-on-sale” clause, which says that if the property is transferred to a new owner, then the full loan balance will be accelerated. (This means the entire balance of the loan becomes due.)
But the federal Garn-St. Germain Depository Institutions Act of 1982 prohibits the lender from calling the loan due under a due-on-sale clause in certain transactions, like a transfer to a relative upon the borrower’s death. (To learn more about the Garn-St. Germain Act, see Avoiding Foreclosure: Can Someone Else Assume (Take Over) the Mortgage?)
If you want to take over a mortgage after a loved one dies or otherwise transfers property to you, but find yourself having trouble communicating with a loan servicer and facing a potential foreclosure, consider talking to a local attorney who can advise you about your rights and help you resolve the situation.