What Happens to a Mortgage When One Spouse Dies?

If you inherit a home after a loved one dies, federal law makes it easier for you to take over the existing mortgage.

By , Attorney

If your spouse passes away, but you didn't sign the promissory note or mortgage for the home, federal law clears the way for you to take over the existing mortgage on the inherited property more easily.

Federal law also requires servicers to give surviving spouses information about the mortgage—even if they aren't on the loan paperwork—and provides protections against foreclosure.

When Someone Dies, Does Their Mortgage Get Paid Off?

Mortgage debt doesn't just vanish when a person, like your spouse, dies. Some factors that determine what happens to the home and mortgage are whether the deceased spouse had a will and whether the surviving spouse signed the note and mortgage.

What Is the Difference Between Testate and Intestate?

If your spouse had a valid will when they died (called dying "testate"), that document most likely specifies who inherits particular property, like the family home.

But if your spouse didn't have a will (called dying "intestate"), state law determines who gets what. Sometimes, the surviving spouse automatically inherits all of the deceased spouse's property. But not always.

Responsibilities of an Heir vs. Executor When It Comes to a Mortgage

An "heir" is someone who inherits money or property through a will or intestate, but they don't have power over the estate or the sale of assets. The executor (called a "personal representative" in some states) administers the estate and distributes the remaining money and property to the heirs after paying all claims.

If you inherit a home and previously signed the promissory note and mortgage for that property, you also inherit the mortgage debt. However, if your spouse (or other deceased borrower) had mortgage protection insurance, that policy will pay off the loan.

However, what happens if you inherit the property, but your name isn't on the note and mortgage? If you inherit the home and decide you want to keep the property by taking over the mortgage loan, various laws can help you in this process (and also help you avoid foreclosure).

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

Again, if your spouse dies and has a legally valid will, that document probably says who inherits the house. The property is transferred to that person through the probate process.

But if the property has a mortgage or deed of trust on it, that document probably contains a due-on-sale provision. (In this article, "mortgage" and "deed of trust" have the same meaning.) A "due-on-sale" clause says that if the property is sold or conveyed to a new owner, like through an inheritance, the lender can accelerate the loan, and the entire outstanding balance must be repaid. Or the lender will foreclose.

So, generally, if someone dies and another person inherits that property, the lender could call the entire loan due based on that transfer. However, federal law exempts certain types of transfers from triggering loan acceleration.

Federal Law Protects Surviving Spouses from Due-On-Sale Clauses

In the past, mortgage lenders treated a borrower's death and subsequent transfer of the home to the surviving spouse as invoking a due-on-sale clause. If a surviving spouse wanted to keep the home, that spouse had to pay off the mortgage debt in full or face foreclosure.

The federal Garn-St. Germain Depository Institutions Act of 1982 (The Garn-St. Germain Act) addressed this situation. Under this federal law, mortgage lenders can't treat certain situations as a transfer for the purposes of calling the loan due, including when a nonborrowing surviving spouse inherits the property.

Protected Types of Transfers Under the Garn-St. Germain Act

The Garn-St. Germain Act prohibits enforcement of a due-on-sale clause after specific kinds of transactions, like:

  • a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety
  • a transfer to a relative resulting from the death of a borrower
  • a transfer where the spouse or children of the borrower become an owner of the property
  • a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property, and
  • a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and doesn't relate to a transfer of rights of occupancy in the property. (12 U.S.C. § 1701j-3, 12 C.F.R. § 191.5).

Exceptions to the Garn-St. Germain Act Exceptions

So, a lender usually can't accelerate the loan or foreclose based on the transfer if it falls under one of the legally protected categories. But the Garn-St Germain Act gave states with prior laws concerning allowable due-on-sale clauses three years to reenact or enact new restrictions.

Only a couple of states acted within this time frame. In those states, federal law doesn't preempt due-on-sale provisions for some specific kinds of loans.

Assumption of a Mortgage After the Death of a Spouse

Again, if the Garn-St. Germain Act covers your situation, you can keep making payments on the loan—and the transfer can't be the basis for acceleration and foreclosure.

But continuing to make the payments doesn't mean that you've assumed the loan or become a borrower on the note (become personally liable for the debt obligation). And if you can't afford the payments and need a loan modification, you might have to assume personal liability for the mortgage loan to get one.

How Do You Assume a Loan After a Spouse Dies?

The Garn-St. Germain Act doesn't prohibit mortgage assumption. It even encourages lenders to allow the assumption of a mortgage, either at the contract rate of interest or at a rate between the contract rate and the market rate. (12 U.S.C. § 1701j-3(b)(3).)

So, once you get the property's title and lender consent, you may assume the existing loan. Contact the loan servicer to find out about the assumption process. However, assuming the existing mortgage only works if you can afford to continue to make the payments. If you can't afford the payments, you'll need to apply for a loan modification (see below).

Other Legal Protections for a Surviving Spouse After a Spouse Dies

In addition to the Garn-St. Germain Act, other legal protections apply to surviving spouses. The Financial Protection Bureau (CFPB) has enacted several rules making it easier for a surviving spouse to assume a deceased spouse's mortgage debt. (State law also sometimes gives legal protections to surviving spouses.)

The Ability-to-Repay Rule Doesn't Apply to Loan Assumptions

For instance, the CFPB issued an interpretive rule that helps an heir assume a deceased borrower's mortgage after inheriting a home. (In the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress established the CFPB and gave it the authority to adopt new rules to protect consumers in mortgage transactions.)

After the original borrower dies, the person who inherits the home may be added to the loan as a borrower without triggering the ability-to-repay (ATR) rule. The ATR rule, which went into effect on January 10, 2014, requires mortgage lenders to ensure a borrower can afford a mortgage before issuing a loan.

If the lender had to follow the ATR rule after a borrowing spouse or another relative dies, it would prevent some heirs from being added to the loan because the lender would have to consider whether the heirs could repay the debt.

Federal Mortgage Servicing Laws Help Heirs Avoid Foreclosure After a Loved One Dies

In some cases, heirs have found it difficult, if not impossible, to deal with the loan servicer after a spouse dies. They find that it's hard to get information about the loan, like how much is due and where to make the payment. Also, servicers have historically refused to give loan modifications to anyone but named borrowers because an heir wasn't a party to the loan contract and, therefore, couldn't enter into a modification agreement.

Now, a CFPB rule gives "successors in interest" the same protections under federal mortgage servicing laws as the original borrower. (12 C.F.R. § 1024.30, 12 C.F.R. § 1026.2(a)(11).) So, a confirmed successor in interest is considered a "borrower" for purposes of the Real Estate Settlement Procedures Act (RESPA) loss mitigation rules. (12 C.F.R. § 1024.31.)

This means if you're a successor in interest, you can get information about the account and apply for a loan modification or another loss mitigation option, even if you haven't yet assumed the loan. Though, you might have to assume the loan at the same time you get a modification.

Who qualifies as a successor in interest. Those who qualify as a successor in interest are essentially the same as those protected under the Garn-St. Germain Act. Specifically, a "successor in interest" is someone who receives property through:

  • a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety
  • a transfer to a relative after the death of a borrower
  • a transfer where the spouse or children of the borrower become an owner of the property
  • a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property, or
  • a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which doesn't relate to a transfer of rights of occupancy in the property. (12 C.F.R. § 1024.31).

The servicer must communicate with you. Because the servicer must treat a successor in interest as a borrower, it has to, among other things:

  • promptly identify and communicate with surviving family members and others who have a legal interest in the home and
  • provide information about the loan and (if appropriate) how to qualify for available foreclosure alternatives, like a modification.

Who must comply with this rule. Generally, these protections and servicing obligations apply to most mortgage loans, including first or subordinate liens on one-to-four unit principal residences. (12 C.F.R. § 1024.30). Certain entities, though, like the Federal Deposit Insurance Corp., and small servicers are exempt from having to comply with some of the requirements.

You Might Also Consider Refinancing the Loan When Your Spouse Dies

Another option that could allow you to stay in the house is to refinance the loan. You'll have to rely on your own credit and finances to obtain the new loan. The lender will examine your income, credit, assets, employment, 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 lower the monthly payment by getting a lower interest rate or extending the loan term.

Taking Out a Reverse Mortgage to Pay Off an Existing Mortgage After a Spouse Dies

In some circumstances, taking out a reverse mortgage might be a good way to pay off an existing mortgage loan. But reverse mortgages are risky and expensive, and are often foreclosed.

Getting Help

Lenders and servicers sometimes violate the laws discussed in this article, inadvertently or perhaps intentionally. If you've received property through an inheritance or in one of the other ways mentioned in this article, but your servicer is refusing to give you information about the loan or otherwise help you, consider talking to an attorney who can advise you about what to do in your situation.

If you qualify as a successor in interest, you might be able to sue the servicer for legal violations under RESPA or make other statutory claims, like claims for Unfair or Deceptive Acts or Practices (UDAP) violations, contractual violations, and tort claims, such as fraud or fraudulent misrepresentation. Some state laws also give successors in interest specific rights and remedies.

Bankruptcy laws might also be useful in your circumstances.

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