What Happens When You Die With A Mortgage
Planning to Leave Your Home to Someone When You Die? What About the Mortgage?
The death of a loved one is never easy, and when financial issues crop up, it can end up adding frustration to the emotional toll families experience. One of the more common issues occurs when someone dies with a mortgage on their house. On one hand, if the family wishes to sell the home after the owner dies, it’s simple and straightforward because the balance on the mortgage can be paid from the proceeds of the sale.
But what if one or more heirs want to keep the house? If there’s still a mortgage and it was not addressed in the estate planning, there are a lot of details that have to be resolved. After all, while the mortgage lender may offer some flexibility in terms of how everything gets worked out, they will eventually want their money.
If the homeowner dies without any basic proper estate planning, such as a will or trust, or if the estate planning did not address what to do with the home and the mortgage, there are a few important points to keep in mind.
First, a common misperception is that an heir or beneficiary may be compelled to take ownership of a home – and the mortgage debt that comes with it – even if they don’t want it. This might be an issue, for example if the house isn’t worth the amount of money still owed on the property. A beneficiary can disclaim their interest in the inheritance and not be saddled with the mortgage.
Also, while most mortgages include a due-on-sale clause, it's important to remember that, by law, immediate family members have the option to take over the mortgage without triggering that clause. This is important if the family of the deceased wants to continue living in the home. That said, this does not apply to non-family beneficiaries, only immediate family. And if a home is co-owned by a couple and the title and mortgage are in both spouses’ names, they pass through automatically, requiring only minimal paperwork.
How to protect your family’s interests
Fortunately, proper estate planning can help your family avoid these potential mortgage problems. And the process starts with figuring out what your options are and what you and your family want to happen upon your passing. It all boils down to two questions:
1. Do your heirs want to own the house after you're gone? If the answer is no, the solution is simple: leave the house to your heirs in your estate planning documents, knowing they will sell the house and pay off any mortgage balance with the proceeds from the sale. If the answer is yes, consider the next question.
2. Will they be able to afford the house, especially if there is a mortgage? At this point, simply do the math. Calculate the monthly costs of ownership – mortgage payment, property taxes, and homeowners’ insurance, as well as HOA dues (if any), utilities, and general upkeep and maintenance. Can the heir you’re leaving the home to afford that payment? Or will they inherit enough money and assets along with the home to pay down the mortgage and reduce or eliminate the mortgage payment?
Once you've done all the mathematical calculations and made all the decisions, your best path forward is to meet with an estate planning attorney to document everything properly. Every family has unique circumstances, which means there is no one-size-fits-all solution. For example, what if you have multiple heirs who want the home? What if you have a single heir you want to have the home, but you want to make sure they can afford it? Also, if you're married, you may feel secure knowing that the surviving spouse will own home if you die, but what if you both pass away at the same time unexpectedly?
These can all be resolved by working with an estate planning attorney who will make sure that your documents are in order. The result will be that your family won't have to make crucial decisions that can affect them for the rest of their lives, all at the worst possible time for them.
If you would like to learn more about how we can help you understand your options and make decisions about your home and mortgage, or if you would simply like to talk to a qualified estate planning attorney about how to protect your family in general, contact Nexus Legal Solutions at 407-900-7722 for a consultation.