Taking Over the Mortgage When Your Loved One Dies

If you inherit a home after a loved one dies, federal law clears the way for you to take over an existing mortgage on the property more easily. It also requires mortgage servicers to provide you with information about the home loan, as well provides protections against foreclosure.

Federal Law Helps Heirs Take Over the Mortgage

Many, if not most, loan contracts contain a "due-on-sale" provision. This clause states that if the property is transferred to a new owner, then the full loan balance can be accelerated, and the entire loan must be repaid.

But the federal Garn-St. Germain Depository Institutions Act of 1982 prohibits enforcement of a due-on-sale clause after specific kinds of transactions, like a property transfer to a relative upon the borrower's death or a transfer from a parent to child. (12 U.S.C. § 1701j-3). So, if the property transfer is covered by the Garn-St. Germain Act, you can keep making payments on the loan—and the transfer can't be the basis for acceleration and foreclosure. You can also assume the loan if you want.

The Ability-to-Repay Rule Doesn't Apply

Also, the Consumer Financial Protection Bureau (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.) Specifically, 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.

If a lender had to follow the ATR rule, 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 Law Also Helps Heirs Deal With the Servicer After a Loved One Dies

In some cases, heirs have found it difficult, if not impossible, to deal with the servicer and get information about the loan, like how much is due and where to make the payment, after the borrower dies. Servicers have historically refused to give out information to anyone but the borrower who's named in the loan documents. Also, servicers have declined to consider giving loan modifications to anyone but named borrowers on the basis that an heir wasn't a party to the loan contract and, therefore, couldn't enter into a modification agreement.

Now, though, "successors in interest" get the same protections under federal mortgage servicing laws as the original borrower. (12 C.F.R. § 1024.30)

Who Qualifies as a Successor in Interest?

A successor in interest is someone who receives property through:

• a transfer by devise (like in a will), 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, 12 C.F.R. § 1026.2(11)).

Protections for Successors in Interest

Because the servicer must treat a successor in interest as a borrower, the servicer 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 loss mitigation options, like a modification.

Getting a modification could help you avoid a foreclosure if you can't afford the current monthly payment amount. Though, the servicer might require you to assume the loan (become personally liable for the debt obligation) as a condition of a loss mitigation offer.

A successor in interest, like an original borrower, is also entitled to enforce some provisions of federal mortgage servicing laws, including many of the loss mitigation procedural protections. 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.

Getting Help

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. State laws or bankruptcy laws might also be applicable in your circumstances.