When a borrower on a mortgage has passed away, there are a variety of situations, people and interests that have to be dealt with.
The first thing to do is identify is who you are with relation to the mortgage and the borrower:
- You might be a co-borrower on the loan: You signed the original note and deed. Your name is listed on the mortgage statement.
- You may be a household member sharing the cost of the mortgage but not a borrower on the loan: You did not sign the original note and the deed. You are not listed on the mortgage statement and do not communicate with the bank but you have been helping the borrower make the mortgage payments. You may be a significant other or friend of the deceased borrower.
- You may be the child of (or heir) of the deceased borrower wondering what happens to the home now that the borrower has died: You did not sign the original note and the deed. Your parents were the borrowers on the mortgage. They passed away and you’re wondering what happens with the home now.
- You may be the spouse of the borrower sharing the costs of the mortgage but not a borrower on the loan: You did not sign the original note and the deed and you are not listed on the mortgage statement.
Co-borrower on the loan
If you are a co-borrower on the mortgage, this means that you signed the original promissory note and deed of trust and accepted full legal responsibility for the mortgage.
This means that your name is listed on the mortgage statement and the lender will speak with you.
You have full rights to deal with the property and full access to the account.
If you can afford the mortgage payments and you want to stay in the home, you can.
To get the deceased borrower’s name removed from the mortgage:
- Send the borrower’s death certificate to your mortgage lender
- Follow up every 48-hours to make sure they received the death certificate
- Ask them to open up a request to have the deceased borrower’s name removed from the loan
- They will ask you to sign and notarize a document stating that you are the sole surviving borrower
If you can’t afford the mortgage payments and you want to keep the home, you will likely need to apply for a loan modification with your lender.
A loan modification will write you a new agreement to allow you to resume making regular payments without having to pay everything you owe at one time.
You will be required to submit a loan modification document package in order to show that resuming mortgage payments is affordable for you with just your income.
Read this guide to the loan modification document package.
Read this guide to help you determine whether you can afford the loan modification.
If you get approved for a loan modification following the death of the borrower, the modification documents will be issued in just your name.
Sign and notarize the final documents and then the modification gets recorded under your name only.
Sometimes, lenders issue final loan modification documents with a space for the deceased borrower to sign. This is a mistake on the lender’s part, but you should leave it up to the lender to decide how they want to fix their issue.
I always advise my clients to sign and notarize on their name’s line and then send the final documents back with a letter of explanation explaining (again) that the borrower is deceased and attaching (again) a copy of the death certificate.
You can even write the word “deceased” on the borrower’s line. The lender will then decide whether to issue a new set of documents with just your name or whether they will accept the documents with the word “deceased” written on the borrower’s line.
If you cannot afford to keep the home on your own, that doesn’t mean you necessarily lose the home to foreclosure
There are many other options to avoid foreclosure (equity sales, short sales, deed in lieu of foreclosure) that you should consult with an attorney about.
There may also be ways to buy time in the home for free using foreclosure mediation.
If you know you cannot afford to keep the home long-term, it’s time to have an attorney consultation because there are still things you can do to reach your goals.
Household member sharing the cost of the mortgage but not a borrower on the loan
If you are not the borrower or co-borrower on the loan AND you want to stay in the property following the death of the borrower:
1. You need to have legal rights to complete an assumption of the mortgage.
a. An “assumption” is the legal term for the process of taking over and “assuming” liability on the mortgage from the deceased borrower
b. Having the legal rights to deal with the property means you are either an executor of the estate or the Administrator appointed by the probate court.
2. You also need to have the financial ability to actually make the mortgage payments on your own.
3. The investor backing the mortgage has to have guidelines that allow the mortgage to be assumed after the death of a borrower.
a. This is not guaranteed. Some investors do not allow mortgages to be assumed following the death of the borrower. Your mortgage servicer will be able to tell you whether the loan is “assumable” or not.
You do NOT have automatic legal rights to assume the mortgage if you are:
- Living in the home
- Making the mortgage payments
Most people in this situation do not end up with the legal rights to handle the property. Unless you were listed as a party in the will or are appointed by the probate court to handle the matter, you won’t have rights to handle the home.
Child (or an heir) of the deceased borrower
If you are a child or an heir, your first step is to figure out if the borrower had a will when they died.
If a borrower dies with a will, there will be a designated executor
The executor is the person responsible for carrying out the deceased’s wishes in accordance with what’s listed in the will.
Most borrowers will state what they want to have happen with their property or they will state who gets to decide what happens to the property in their will and the executor’s job is to carry out these instructions.
If you are not named the executor in the will and the will does not give you rights to the home, your rights to the home likely end here.
If you are the executor or were given rights in the will to do something with the home, you will be able to handle the property in accordance with the rights given to you in the will.
If the mortgage is in default and you want to keep the home AND have rights provided to you in the will, you may have an option to apply for an assumption and loan modification of the will at the same time.
- An “assumption” is the legal term for the process of taking over and “assuming” liability on the mortgage from the deceased borrower
- A loan modification is a request for the mortgage lender to write you a new agreement for you to resume regular mortgage payments without having to pay everything owed on the mortgage
- The investor on the mortgage has to allow assumptions (some investors do not allow assumptions so you need to ask your mortgage lender if you can apply for this)
- You will need to show your income to the bank as part of the loan modification process to prove that you can afford the mortgage on your own
If the mortgage is not in default, you can apply for just an assumption without needing a loan modification.
(If you believe there has been fraud or an error with regards to the will and that you should have been named the executor, you should contact a probate attorney to discuss whether you have a case to contest the will).
If the borrower dies without a will (intestate), the estate will need to be probated in order to determine who has the legal rights to handle the property
If the borrower died and did not leave a will, they are said to have died “intestate.”
Even if you think that you should be the party to handle the mortgage, it’s not always that simple.
When people die intestate, there are other parties (heirs) that may have a legal interest in the home. These party’s interests are governed by state laws.
So, in order to start dealing with the mortgage, the estate will need to be probated – meaning, the estate will need to be reviewed by a judge in order to appoint a personal representative in charge of administering the issues related to the estate (called an Administrator).
In this situation, you have to probate the estate before you can assume the mortgage and apply for a loan modification.
The reason the estate needs to be probated is to ensure that any heirs to the estate have an opportunity to be heard to ensure that the estate is handled according to the state’s laws.
If you believe that you should be deemed the Administrator of the estate, you should contact a probate attorney to discuss your next steps.
If the estate gets probated and you get named the Administrator and the mortgage is behind on payments AND you want to keep the home, you can then apply for an assumption and loan modification at the same time.
Spouse of the borrower, but not a co-borrower
If you are the spouse of the borrower and the borrower purchased the home as their separate property before you were married, your state’s laws will dictate whether you have an interest in the home under community property laws.
If the borrower left a will (see above), and provided for you to get everything after the borrower’s death, then you should be able to fully handle the property.
If the borrower dies without a will, the estate will likely need to be probated in order to figure out who has the rights to fully handle the property.
If this is describing your situation, you may need to discuss your community property rights with an estate attorney to better understand what your interests are in the home.
Most likely though, if you are not listed as a borrower on the loan and there is no will, the estate will still need to go through probate.
If you are a Washington State homeowner and have questions about an assumption, loan modification or want to know what your next steps are after a borrower has died, feel free to give me a call at (425) 654-1674.
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