When you retire, it’s not uncommon to consider how your debts will affect your loved ones after you die. As a mortgage is the biggest debt you will likely ever have in your life, this is something that a lot of people focus on. The good thing is that heirs are not responsible for the debts of family members or friends, and there are ways to ensure everybody remains in the home – if that’s what you want, of course. Keep reading to find out more.
What Happens After a Death?
The death of a borrower will affect a loan, but not as much as you think. While the loan will still need to be paid off, there are a few different options here. It can be a good idea to speak to your family members, as well as an estate lawyer like the highly rated Finity Law Firm. They will be able to advise you on what your options are while also guiding you on your other assets – you can easily get a free initial consultation from them online. In general, though, you have a few main options. These are described below.
Ensure Payments Can Still Be Made
In order to keep the house within the family, it’s important to ensure payments are still made on the property. Doing so prevents foreclosure or penalty fees from being added to the loan. Anyone from the executor of the will to a surviving spouse can make these payments, though you will need to plan this in advance.
Passing the Home to a Relative
Under federal law, the mortgage lenders must allow the relatives of the deceased to take over a mortgage if they are in a position to do so, and want to do so. Unlike when obtaining a mortgage normally, relatives do not have to prove they are in a position to make the monthly repayments. This law prevents the lenders from selling the property from under the relatives or triggering a due-on-sale clause and demanding payment this way.
Co-signers Are Still Responsible
If the mortgage was co-signed, the living co-signer is still responsible for making payments on the debt. This applies whether they live in the property or not.
For married couples, the process is about as straightforward as it can be. The surviving spouse will usually take over the property and all of the debts associated with it.
Refinancing and Selling
Of course, the heirs of the property can also choose to refinance the property or sell it if they so wish. If the heirs choose to refinance the property to obtain a better mortgage, this is done in the usual way. If they choose to sell the property, and the home is worth more than the mortgage owed, the equity will be split between the heirs. If the opposite is true and there is negative equity on the property, the heirs may decide to let the lender foreclose on the property.
While there is a lot of legal jargon surrounding what happens to a mortgage when a person dies, in many cases the family will be able to retain the property. It is always best to speak to an attorney, as described above, to ensure everything is in place.