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 ([email protected]), or call my office (508) 797-3010. Also, visit my elder law blog at http://worcesterelderlaw.blogspot.com/