What happens to the Mortgage after the Borrower Dies?
When someone passes away, that sets into motion an entire series of events that can lead to significant stress. Not only are there the emotional losses to deal with, but there is also the loss of potential income – and, in some cases, a mortgage that often has a significant balance outstanding. There are several factors that come into play when determining what should happen to the loan.
Did the borrower leave behind a will?
If so, then the executor has the authority to get in touch with the lender and negotiate payment arrangements. That keeps the mortgage going without any interruptions, so if there are other family members living in the home, there should be no danger of foreclosure. However, if the borrower dies intestate, then no one has any authority to deal with the lender until someone goes in front of a judge and receives appointment as the estate administrator.
How was the title held?
If the borrower was married, and the spouse also appears on the title as a joint tenant, the passing of one spouse should not affect the mortgage going forward. However, if the borrower who is deceased is the only name on that title, the executor (or a party close to the deceased in the absence of a will) should contact the lender as soon as possible. Lenders will generally cooperate with an executor or estate administrator, but if communication is slow or nonexistent, the lender may take steps toward foreclosure in an accelerated fashion.
How were the payments handled?
Each issuing bank has different policies on the way payments should go forward after the passing of an account holder. If the borrower was the sole owner of the bank account from which the mortgage payments came each month, and if the borrower dies without a will, the bank will generally freeze those accounts until a court order appears naming someone the administrator of the estate. This process can take some time, so it can be important to make other arrangements so that the payments take place without interruption.
In the case of a will, the bank may permit the payments to keep coming out of the borrower’s account after decease, so that the mortgage does not go into default. However, this would be completely up to the bank’s discretion, so swift communication between the executor and the bank is essential.