Removing Deceased Husband From Mortgage: Legal And Financial Steps

If your spouse had a mortgage loan, their death doesn't mean the mortgage debt disappears. In fact, the surviving spouse often has the right to stay in their home and take over the mortgage under federal and state laws. If you inherit the house and you're named as a co-borrower on the mortgage, you'll also inherit the mortgage debt. However, if your spouse had mortgage protection insurance, that policy will pay off the loan. Here's what you need to know about assuming a mortgage if you've inherited a home from your deceased husband.

The Garn-St Germain Act and other legal protections for surviving spouses

The Garn-St Germain Depository Institutions Act of 1982 is a federal law that applies to residential property in every state and territory. It was a response to the savings and loan crisis of the 1980s and was designed to prevent the application of due-on-sale clauses in a number of settings. Due-on-sale clauses allow banks to force payment of mortgages when the borrower sells their property.

The Act offers protection to a spouse if they received property as part of a divorce settlement or separation agreement, as long as they live in the property. It also allows for the property to be transferred to a surviving spouse upon death without triggering the due-on-sale clause. This ensures that surviving spouses can stay in their homes without the pressure of having to refinance or sell.

The Garn-St Germain Act also exempts transfers of property to children from enforcement of due-on-sale clauses. So long as the heir is a child who continues to pay the mortgage, the Act allows them to continue to reside in the property.

The Act also applies to transfers to other family members, and to transfers into trusts, which can avoid the lengthy and costly probate process.

In addition to the Garn-St Germain Act, other legal protections apply to surviving spouses. The Financial Protection Bureau (CFPB) has enacted rules to make it easier for a surviving spouse to assume a deceased spouse's mortgage debt. For example, after the original borrower dies, the person who inherits the home may be added to the loan as a borrower without triggering the ability-to-repay (ATR) rule. Federal law also requires servicers to give surviving spouses information about the mortgage, even if they are not on the loan paperwork, and provides protections against foreclosure.

How to assume a mortgage from a deceased family member

Assuming a mortgage from a deceased family member can be a complicated process, and it's important to understand the legal requirements and options available to you. Here are some steps to guide you through the process:

Understand the Legal Requirements and Options:

Notify the mortgage company about the death of your family member. In some states, you may have up to 30 days to do this, but it's best to inform them as soon as possible to avoid any financial consequences. The mortgage company will provide information about the loan and your options for assuming it.

Seek Legal Advice:

Consider hiring a lawyer, especially if the situation is complex or involves multiple heirs. A lawyer can help simplify the process and relieve some of the stress, ensuring that your rights as an heir are protected.

Gather Necessary Documents:

You will need to provide proof that you are the rightful inheritor of the property or the executor of the estate. Collect essential documents, such as the death certificate, will, and letter of testamentary. If you need to transfer the title, you will require proper authorization, including the deed. Contact your local records office if you need a copy of the deed or any other missing documents.

Decide on Your Course of Action:

You have several options when assuming a mortgage from a deceased family member. You can continue making payments on the existing loan, apply for a loan modification if you cannot afford the payments, or opt to refinance. If there are multiple heirs, you may need to sell the home to pay off the mortgage and distribute any remaining funds according to the will or state laws.

Understand the Financial Implications:

If you decide to assume the mortgage, ensure that you can afford the monthly payments. You may also want to consider the potential costs associated with refinancing or any other financial arrangements. Additionally, be mindful of any tax implications, as transferring the title may result in a change in the taxable amount, as mentioned in the Texas example.

Explore Mortgage Protection Insurance:

If the deceased family member had mortgage protection insurance (MPI), it can help cover the mortgage payments for a certain period. MPI is different from private mortgage insurance (PMI) and ensures that your loved ones can hold onto the house after your death.

Re-dedicating the Property:

In some cases, you may not need to assume the mortgage directly. You can re-dede the property in your name, effectively transferring ownership without changing the mortgage details. This option allows you to continue making payments on the original mortgage.

It is important to note that the specific laws and procedures may vary depending on your location, so consulting with a legal professional is advisable to ensure you are complying with all relevant regulations.

Mortgage protection insurance and how it can help

When a spouse passes away, the surviving spouse inherits the home and the mortgage debt. If the surviving spouse's name is also on the deed, they just need to update the title. However, if not, they will need to go through probate, which can be a lengthy process. In some cases, the deceased's adult children from another marriage may also contest the ownership in court.

Mortgage protection insurance (MPI) is a type of insurance policy that helps the family of the policyholder make mortgage payments after they die. It is similar to life insurance, but the beneficiary is the deceased's mortgage lender. MPI is not the same as private mortgage insurance (PMI), which safeguards the owners of the home loan if the borrower stops paying the mortgage. MPI can also help you avoid foreclosure if you can no longer work to pay your mortgage. It typically covers the mortgage payment for a certain amount of time if the borrower loses their job or becomes disabled, or it pays off the mortgage loan if the borrower dies. MPI can be purchased from banks, mortgage lenders, or private insurance companies, depending on the state. It is a good option for those with unstable employment or those who cannot qualify for or afford traditional life insurance policies.

However, MPI has its limitations. It generally only covers the principal and interest portion of a mortgage payment, and other fees like HOA dues, property taxes, and homeowners' insurance would still need to be paid by the family. Additionally, as the mortgage is paid off, the insurance payout decreases, while the premiums remain the same. This can be a significant drawback of MPI.

Therefore, while MPI can provide valuable protection for families, it is important to carefully consider its limitations and compare it with other insurance options before purchasing.

What to do if there are multiple heirs

If there are multiple heirs to a mortgage, the situation can become complicated, especially if everyone involved cannot agree on what to do with the home. Here are some options and considerations for each scenario:

If you want to keep the home and your co-inheritors don't:

You have the option to buy out the other heirs. However, this option may not be feasible for everyone, as it requires a significant amount of funds. To free up money for the buyout, you can consider refinancing, but keep in mind that this will make you solely responsible for all mortgage payments going forward.

If you want to keep the home and your co-inheritors also want to keep it:

In this case, you will need to work together to decide how to manage the property and the mortgage. One option is for one heir to buy out the others and assume sole ownership and responsibility for the mortgage. Alternatively, you could consider co-owning the property with your co-inheritors, which would involve working out an agreement on how to divide the mortgage payments and other responsibilities.

If none of the heirs want to keep the home:

Selling the home is often the simplest solution if there are multiple heirs and no one wants to retain ownership. The proceeds from the sale can be used to pay off the mortgage, and any remaining funds can be distributed among the heirs according to the will or state laws.

If there is a disagreement among the heirs:

If there is conflict or disagreement among the heirs regarding what to do with the home, it is advisable to seek legal counsel. An attorney specializing in elder law or estate planning can help you navigate the complex dynamics and ensure that the rights and interests of all parties are protected.

General considerations for multiple heirs:

• It is important to review the mortgage terms and understand the outstanding balance, monthly payments, interest rate, and type of interest rate (fixed or variable).
• If the deceased had mortgage protection insurance, this may cover the mortgage payments for a certain period.
• Notify the mortgage company promptly after the individual's passing to avoid potential financial consequences.
• Heirs should also be aware of any state laws or legal protections that may apply to their situation, such as the Garn-St. Germain Depository Institutions Act of 1982, which provides protections against foreclosure for surviving spouses.
• If the heirs decide to sell the home, understand the potential tax consequences, such as capital gains taxes on any profits from the sale.

Remember, it is essential to seek professional legal and financial advice when dealing with complex situations involving multiple heirs to ensure that all decisions are made in compliance with the law and in the best interests of all involved parties.

What to do if the deceased had no will

If your husband had no will, you will need to notify the mortgage company of his passing. It is important to do this as soon as possible, as failing to notify the mortgage company of a death can have financial consequences. For instance, if payments stop after the individual’s death, the lender can foreclose on the home.

If your husband had no will, you will need to check your state law to determine who inherits what. If you are the sole inheritor of the property, you will need to contact the loan servicer to find out about the assumption process. You will need to provide legal documentation of both the death and inheritance. If you are a co-signer on the mortgage, you will automatically assume responsibility for payments.

If you are not listed on the mortgage, there must be a transfer of ownership. Once that's completed, you must continue making payments or sell the property. If you are unable to afford the payments, you will need to apply for a loan modification.

If there are multiple heirs, you may need to sell the home to pay off the mortgage and distribute any leftover funds from the sale to the heirs as dictated by the state law. If you want to keep the home, you will need to buy out the other heirs. A refinance can help you free up funds to do this, but be mindful that buying out the other heirs will make you solely responsible for all mortgage payments.

If your husband had mortgage protection insurance, this will pay off the loan.

Frequently asked questions