Mortgage Rights After The Death Of A Spouse

The death of a loved one is difficult and emotionally draining. Uncertainty about your finances just adds to the stress, especially if you’re concerned about the possibility of losing your home.

As a surviving spouse, in many cases, federal and state laws offer protections that can help you stay in your home and take over your existing mortgage payments if you so choose. This article will walk you through who is likely to inherit the house, what may happen to the existing mortgage, what rights and options are available to you, and the special considerations that apply to a reverse mortgage.

What Happens To Your Mortgage If Your Spouse Dies

When your spouse dies, mortgage debt doesn’t just disappear. Several factors determine who is ultimately responsible for paying a mortgage. One key factor is whether your spouse had a will or estate plan. Another important factor is whether you are named as a co-borrower on the mortgage.

Testate Vs. Intestate: Who Inherits The House?

A person who dies without a valid last will and testament is considered to have died intestate. You can die intestate if you’ve never made a will or if a court finds that your will isn’t legally valid. Whether your spouse died intestate can make a big difference in determining who inherits the house and what will happen to the mortgage.

If Your Spouse Had A Will

If your spouse had a legally valid will, it probably specifies who will inherit the house. Some wills direct the executor—the person appointed to carry out the will’s instructions—to pay off the mortgage loan using estate funds.

Other types of estate planning documents can also determine who inherits the house. For example, if the house is held in a trust, the trust documents will usually control who inherits the house. In some states, the deed to the house can contain language that controls how ownership is transferred. These types of documents often allow surviving spouses to keep real estate out of probate. Probate is the legal process courts use to authenticate a deceased individual’s will and distribute their estate’s assets.

If Your Spouse Died Intestate

State law will determine how property is transferred when someone dies without a will. If your spouse died intestate, your state’s intestate succession laws will determine which family members inherit the house and the rest of their estate.

In some states, the surviving spouse automatically inherits everything. To qualify as a surviving spouse, you must have been legally married when your spouse died. In other states, an intestate person’s property is divided between the surviving spouse and any surviving children or other heirs. Check your state’s laws to be sure.

If You Inherit The House Do You Also Inherit The Mortgage?

Most of the time, if you inherit the house and you are named as a co-borrower on the mortgage, then you will also inherit the mortgage. In most states, you must notify the lender that your spouse has passed away. Other than this notice, you don’t have to take any action. The loan will automatically become your responsibility.

One exception is if your spouse had a mortgage life insurance policy. This is a special kind of life insurance policy that pays the outstanding mortgage balance in full if a borrower dies. Some mortgages require you to have mortgage life insurance, but you can also purchase a policy voluntarily. Note that mortgage life insurance is not the same thing as private mortgage insurance or ordinary life insurance. You aren’t required to use ordinary life insurance proceeds to pay off a mortgage.

Surviving Spouse Rights

What happens if you inherit the house, but your name isn’t on the mortgage? In this situation, you have a few different options available to you. Depending on the existing mortgage terms, the house value, and your other life circumstances, you may consider refinancing the mortgage on your own or with a co-signer. Alternatively, you may want to sell the house and pay off the mortgage debt.

In most cases, you’ll also have the option to stay in the house and take over the existing mortgage. Under federal law, a surviving spouse has the right to assume the mortgage if they meet certain criteria.

The Garn-St. Germain Depository Institutions Act Of 1982

Before 1982, mortgage lenders treated a borrower’s death as a property transfer. This meant that if a surviving spouse wanted to stay in the house, he or she would have to pay the mortgage balance in full or face foreclosure.

The Garn-St. Germain Depository Institutions Act of 1982 (The Garn-St. Germain Act) changed that. This federal law prevents banks from treating a borrower’s death as a transfer in certain situations, including when the borrower’s surviving spouse inherits the house. 

Other Legal Protections

The Garn-St. Germain Act isn’t the only legal protection available to a surviving spouse. The Consumer Financial Protection Bureau (CFPB) has enacted several rules to make it easier for a surviving spouse to assume a mortgage. These rules require that the surviving spouse receive all the same rights and protections as the original borrower, including the rights to seek loss mitigation or to pursue a loan modification. Many states also have laws to protect surviving spouses and heirs.

Can The Mortgage Lender Demand Payment Of The Entire Mortgage Balance?

Most mortgages contain a provision known as a due-on-sale clause (sometimes called an acceleration clause), which says that if the property is sold or transferred, the loan servicer may call in the loan. In other words, when a bank enforces a due-on-sale clause, the entire mortgage balance becomes due immediately. If the bank doesn’t receive payment in full, it can foreclose.

Due-on-sale clauses exist to protect mortgage lenders’ rights when a property is sold. These provisions ordinarily prevent anyone from assuming the mortgage. The Garn-St. Germain Act prevents mortgage companies from enforcing due-on-sale provisions in certain situations. Some of these situations include:

• When, in cases where the house is owned jointly by two or more people, the borrower dies and ownership transfers to the surviving joint owner or owners. The borrower and the other co-owner(s) must have owned the house as joint tenants or as tenants by the entirety.

• When the borrower’s surviving spouse, child, or relative inherits the house from the borrower. The relative(s) must live in the house after inheriting it.

• When the borrower transfers the house into a living trust. The borrower must continue to live in the house.

Reverse Mortgage After The Death Of A Spouse

The term “reverse mortgage” usually refers to a Home Equity Conversion Mortgage (HECM). A HECM is a type of loan available to homeowners who are at least 62 years old and who own their homes outright. The borrower doesn’t make any loan payments on a reverse mortgage. Instead, the borrower receives money, as monthly payments, a lump sum, or a line of credit.

Each payment increases the mortgage balance and decreases the homeowner’s equity in the house—the opposite arrangement as an ordinary mortgage. In a reverse mortgage, repayment of the entire mortgage balance is due when the borrower either sells the house, dies, or moves out of the house for longer than 12 months.

Department of Housing and Urban Development (HUD) regulations allow a surviving spouse to continue living in the house without having to pay the reverse mortgage balance if they meet certain criteria. Otherwise, they have to pay the reverse mortgage in full to remain in the house.

Surviving Co-Borrower Vs. Non-Borrowing Spouse

If you are a surviving spouse and your name is listed as a co-borrower on the reverse mortgage, you may continue living in the house and continue drawing payments against the reverse mortgage.

If you are a surviving spouse but you were not a co-borrower on the reverse mortgage, you’re considered a non-borrowing spouse. As a non-borrowing spouse, you still have a right to stay in the home without having to repay the reverse mortgage if these requirements are met:

• You must have been married to the borrower when the loan was made. If the loan was made on or after August 4, 2014, your name must be listed on the loan as a non-borrowing spouse. If your spouse already had a reverse mortgage when you got married, you don’t qualify as a surviving spouse. You may still have some rights to remain in the house as a surviving heir.

• You must have lived in the home continuously since the loan was made. The house must be your principal residence. You must continue to live in the house. If you sell the house or move out for longer than 12 months, the entire loan balance will become due.

• You must be current on all property taxes and homeowners insurance payments. If you default on these payments, the lender can call in the loan.

• You must provide documentation showing that you qualify as a surviving spouse within 90 days after the borrower’s death.

Let’s Summarize...

After your spouse dies, it helps to know what you can expect regarding your home and mortgage. The first step is to figure out whether any estate planning documents exist and review them to determine who will inherit the house. In most cases, this person will also inherit the mortgage. As a surviving spouse, if the house transfers to you, there are laws in place that allow you to step into your spouse’s role as the borrower on the mortgage. You also have the right to sell the house or attempt to refinance. If you have a reverse mortgage, you may be able to stay in the house without having to pay it back, so long as you meet HUD’s criteria.