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How does a mortgage work when you pass away?

By Robert G. on 02.21.2024

When a mortgage holder passes away, ownership of the home remains in the owner's name.  Upon the homeowner's death, the heirs must decide whether to keep or sell the home. If they choose to retain it, they are required to pay off the existing mortgage.  Alternatively, if they decide to sell, the mortgage is settled using the sale proceeds. 

Should the heirs opt to keep the home, they can pay off the mortgage by covering the amount owed or 95% of the home's current market value, whichever is less.  In the case of a sale, the heirs should notify the lender of their intention to sell, and the lender will assist them with the steps necessary to resolve the mortgage.  It is important to note that the home does not automatically transfer to the lender upon the homeowner's death.

The lender can only acquire ownership of the property through a deed transfer from the heirs or by foreclosing on the loan, akin to a traditional mortgage.  In scenarios where the property's value has diminished and there is no equity, some families may decide to allow the lender to take possession, especially if they reside far from the property or its value has significantly decreased.  It is crucial for families to have a plan and understand their rights and options, enabling them to take timely and suitable actions that align with their best interests when necessary.

Also See: Reverse Mortgage After Death: What Heirs & Family Must Know

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