A home may be among a person’s most valuable assets, but its mortgage does not end with a person’s death. Mortgage debt may impact inheritances and the homeowner’s estate.
Mortgage remains
A mortgage is a lien on the property that remains until the loan is repaid, even when the borrower dies and the property has a co-owner. This liability also persists with home equity loans or lines of credit after the homeowner’s death.
When a property owner dies, the mortgage must be repaid. The lender may foreclose on the property if it is unpaid.
A co-borrower or co-signer may remain liable for the debt and should continue to make mortgage payments. If there are no co-borrowers or co-signers on the title, the estate executor should continue to make mortgage payments with estate funds until the property is sold or passed on to heirs. There may be complications for the heirs and the estate if there are insufficient funds for mortgage payments.
At times, the home may be bequeathed to someone or there may be a joint owner with the right to survivorship. Those individuals will have to decide on what happens to the property and the mortgage. The person who inherits the home must assume the mortgage and make payments or sell the property.
Joint ownership or tenancy of the home is not a joint mortgage. A person may own a home with their spouse or another person and have their names on the deed. But one person can still be the sole borrower on the mortgage agreement or deed of trust and promissory note. The joint owner usually assumes the debt obligation.
Dying intestate
The debt persists if a person dies without a will and even if there are no co-borrowers, no named heirs and nobody in charge of making mortgage payments. If nobody makes payments, the lender will typically ask a court to determine if there are any legal heirs. If no heirs are identified, the lender will foreclose on the property.
Mortgage companies
Estate administrators or heirs should notify the mortgage company about the borrower’s debt within 30 days and provide updated mailing and email addresses. Having time to obtain and submit the death certificate and other important documents is important. Assuming the mortgage quickly can prevent long-term problems with the lender.
Inheritances
Mortgage debt is passed on to the heir or new property owner. Sole heirs may seek to assume the mortgage or sell the property. Allowing the lender to foreclose is an option but there is a risk of a deficiency judgment if the sale proceeds are inadequate.