Monday, July 30, 2012

What happens to my mortgage if I die?

In meeting with clients, a common question that surfaces is what happens to my home if I pass away and still owe a lender money.  The easy answer is that the mortgage still needs to be paid, whether by a surviving joint owner of the property, personal representative of the estate of the decedent, or by the trustee of a trust if the property was owned by a trust.  This is the case because the mortgage follows its collateral, the real estate, and not the person that has passed away.
Unless there is a surviving joint owner who is also on the mortgage, the estate created at the death of the borrower has an obligation to pay off the mortgage.  Most lenders have language in their mortgages and notes that call for immediate payment upon the death of the person that took out the mortgage.  However, the reality of the matter is that most estates do not have the liquid funds available to pay off the mortgage debt in full.  The personal representative of the estate will first use any funds in the estate to pay off the mortgage or at least keep the payments current.  In most instances, unless someone is continuing to live in the home, the house will then be sold in order to discharge the mortgage debt, if possible.  In this case, if there are any excess funds from the sale, then they will be placed back into the estate and treated like other estate assets.   If after the sale, part of the mortgage debt is still remaining, lenders may be able to apply to the estate for further payment, but with the collateral gone and the borrower deceased, the debt is typically satisfied after the sale of the real estate.
Alternative arrangements - Some people take out a life insurance policy that is effectively deemed mortgage insurance.  Its purpose is to discharge the mortgage in the event that the owner/borrower passes away prior to the mortgage being discharged.  This is a relatively inexpensive way to insure that your beneficiaries are not burdened with an encumbered property should someone die prematurely.  Also, some lenders are willing to alter notes and mortgages to allow surviving children or others to assume the mortgage at the death of the original borrower. This allows heirs to keep the property and start paying off the mortgage themselves.  In either case, it is a more desirable scenario than being forced to sell real estate in order to satisfy a mortgage obligation.
For more information, please visit my website (www.daviaulaw.com), e-mail me (nick@daviaulaw.com), or call my office (508-797-3010).
Also, visit my elder law blog at http://worcesterelderlaw.blogspot.com/

24 comments:

  1. This is a matter every homeowner has to at least be aware of in case of the unlucky event they have to deal with this. We all know this is usually the largest debt one can accumulate. Unfortunately, death can’t provide an escape for debts. You’re right that the mortgage still needs to be paid. Whether the homeowner dies, the debt will have to be taken care of by any means.

    Javier Bonnell

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  3. “…the mortgage follows its collateral, the real estate, and not the person that has passed away.” I think this statement has answered the question above. Even when you die, your debt will not disappear. It will just be passed on to the members of your family, who are also joint owners of the property. If the house was only in your name and they can’t refinance it, none of your family members will be responsible for the debt. But the family members can refinance the mortgage if they have the potential to pay for it.

    *Genny Stutesman

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  4. I have no idea, but I agree that estate planning is super important. I think that too many of us do not plan out our lives like we should. In Minnesota and throughout the world, it is amazing to see the difference.

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  5. Even the most organized people have difficulty keeping track of every part of their financial lives. Often, they turn to a an experienced estate planning lawyer to not only keep track of the assets and finances they have accumulated, but also to make arrangements to disseminate that wealth as part of an estate after death
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  6. Thanks for your help with estate planning phoenix! I appreciate all of the time and energy you take to inform individuals such as myself!

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  10. Its important to do your estate planning in Merrillville, just in case that unfortunate event were to happen you would be able to take care of your family!

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  11. One of the issues that all homeowners have to deal with is what would happen to their mortgage if they died. The mortgage is generally the largest debt that most people accumulate in their lifetimes. When you pass away, this debt will not simply disappear and will have to be handled in one way or another. Tulsa mortgage

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  13. thanks this was really helpful while ive been looking for Phoenix estate planning. hopefully i can find something soon!

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  14. Great post. I will definitely be keeping this post in mind during my meeting with my Phoenix estate planning attorney.

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  15. I have been thinking about doing my estate planning but I need to find a good company that does it in Sacramento. Luckily I've found a few good websites that look promising! http://bpelaw.com/estate-law/estate-planning/

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  16. I would just make sure my spouse and I have life insurance. Paying the mortgage is one of the largest debts left when someone dies. Having some money readily available will be one less stress. Loved ones have enough to worry about at that time.
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  17. Get mortgage information from more than one lender. Don't just go to your personal bank. Shop around for mortgages as much as possible, not only at commercial banks, but at thrift institutions, credit unions and mortgage companies. It's the only way to make sure you've found the best price on your mortgage.
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  18. One of the issues that all home-owners have to deal with is what would happen to their mortgage if they died. The mortgage is generally the largest debt that most people accumulate in their lifetimes. I have been thinking about doing my estate planning but I need to find a good company that does it in Sacramento.

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  19. My grandparents passed suddenly when I was a child. My dad was in charge of their estate. We had to do renovations really quick and then sell the house so we didn't have to keep paying on the home.

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  20. I'm not old enough to worry much about what happens to a home mortgage when I die, but my parents are starting to hit that age. I know that they haven't payed off their house yet, and none of the rest of us would be able to pay the mortgage if anything were to happen to them. I need to encourage them to sit down with someone who can help them get all of this figured out.
    Andre Franklin | http://www.pgbblaw.com/PracticeAreas/EstatePlanning.aspx

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  21. I'd like to find someone to talk to about estate planning in Pottstown. My estate down there is very large and hopefully I can get it taken care of. It would be nice to have everything nice and orderly.
    John Bond | http://www.cappolellalaw.com/estates--wills--probate.html

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  22. It is nice to know there are several options for my mortgage if I pass away. I know that it can weigh on the mind when going through estate planning. I didn't realize that a lot of estate mortgages required immediate payment after the death. That is something to keep in mind.

    Elisa Jed | http://www.valentineandvalentine.com

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  23. We have to hire an agent that is not new in the business and has all the experience needed to handle our business well. Its important that we take control of how our business run to ensure that things will go our way. Our property investment should be in the hands of a good agent to help us secure our success for our future.

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  24. This is helpful to know, thanks. My grandma is getting pretty frail, and there's some debate over whether or not she should sell her house to one of her kids. It's a nice home, and we'd like to keep it in the family, but it does still have its mortgage attached. Whatever we decide, though, we need to do it soon. http://www.hurth.co

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