Mortgage When the Borrower Dies

If you’ve recently had a loved one pass away, you may be wondering what happens to a mortgage when the borrower dies. Unfortunately, there is no one cut-and-dried answer to this question. It depends on who applied for the loan and whether or not the surviving family members want to keep the property. 

In light of that, we’ve created a guide to this situation below. Keep reading to learn what happens to mortgage debts after the homeowner passes away.

Key takeaways

1. Under federal law, a relative who inherits real estate has the right to assume the mortgage and make payments without requalifying.
2. If no one assumes responsibility for a mortgage, the lender is within their rights to pursue foreclosure.
3. If you sell an inherited property, you can keep the equity left after the mortgage is paid off.

What happens to a mortgage when someone dies?

Typically, your state will take care of resolving your debts before any assets are passed on to family members and other loved ones. However, the process works a bit differently with mortgage debts. Put simply, unless you took out your mortgage loan with a co-borrower, there is no law that says anyone has to take over the mortgage payments and pay off the loan.

Under federal law, lenders must allow family members the freedom of assuming the mortgage loan after death, which means that, if a family member should inherit the home, they can automatically continue making the mortgage payments without going through the underwriting process to qualify for the home loan first. 

That said, if the homeowner dies and no one assumes the responsibility for the monthly payments, the mortgage lender is within their rights to pursue foreclosure after the death of the borrower. 

Who is responsible for a mortgage after the borrower dies?

As we mentioned above, if the borrower dies, the requirements for assuming the mortgage after death will depend on whether or not there was a co-signer or co-borrower. 

Paying the mortgage after the death of a spouse

To start, assumption of a mortgage after the death of a spouse is common because typically the surviving spouse applied for the loan with the deceased individual. In this scenario, the surviving spouse would need to prepare to assume the loan. They would be responsible for continuing to make mortgage payments.

In truth, the above scenario is why many couples invest in life insurance.  That way, if one spouse dies, the other can use the life insurance payment to pay off the mortgage. However, in the event that you have a reverse mortgage, you will not be responsible for paying off the mortgage until the last borrower dies or is unable to keep living in the home.

Paying the mortgage after the death of a parent or loved one

On the other hand, if you were not a co-borrower on any of the deceased’s home loans, you’re under no responsibility to assume the mortgage. In this case, you have three options: 

• You can decide to keep the home: At that point, you would ask the mortgage lender about transferring the mortgage after death. After that was done, you would assume responsibility for making the remaining mortgage payments.
• You can sell the property: if you decide to sell the home, the mortgage would be paid off in full upon the sale and you would get to keep any excess proceeds.
• You can do nothing: If you decide not to take any action, eventually, the mortgage lender will foreclose on the property. Keep in mind that foreclosure can occur even if your name is on the deed but not on the mortgage at the time of death.

What happens to a mortgage when the lender dies?

Last but not least, it’s also worth discussing what happens to a mortgage when the lender dies. Again, the answer to this question depends on how the deceased individual’s estate is handled. In some cases, you will owe your remaining mortgage payments directly to the lender’s estate.

However, in other cases, the estate may sell the debt to another loan servicer. In that case, you would then be responsible for paying the new loan servicer.

The bottom line 

At the end of the day, what happens to a mortgage after a borrower dies depends on what has to happen to the property. For example, if you want to keep the property in the family, estate planning is going to be key. In this case, you’re going to want to designate a beneficiary for the property, ideally someone who will be able to afford the mortgage payments.

However, if you are less concerned with keeping the property, the person managing your affairs can simply sell the home and use the proceeds to pay off the mortgage loan.