Can the Bank Call the Mortgage When a Husband or Wife Dies?
When someone who signed a home loan dies, the surviving spouse or the heirs may be able to continue to make the loan payments and avoid a foreclosure. But before going any further, we need to make it clear there are two separate and related issues you need to keep in mind when a spouse with a mortgage dies:
- The property’s ownership
- The home loan’s status
Let's break-down both issues into easy-to-understand pieces.
Home Ownership When Spouse Dies
Many Bills.com readers mash together the ownership of their property with the home loan. Who owns property is set by a document called a title. A title for real property is sort of like the title to a car — the title lists who has rights to the property. With a car title, your name is listed as the owner. If you financed the car, the lender is listed as a lienholder. The car title says, in effect, you have the right to possess the property and the lienholder has the right to repossess the vehicle if you don’t pay-off the loan.
A real property title has all of the same basic parts and functions of a car title, plus a few features. One feature is the ability to allow several kinds of concurrent ownership. Concurrent ownership means two or more people share interest in the property. All states allow two forms of concurrent ownership. About half allow a third type, and a handful of states allow a fourth type.
Don’t worry — we won’t go through all four types of concurrent ownership. Instead, we’ll focus on the two most common ones. (Read the Bills.com article Law of Real Property Ownership at a Glance to learn details about concurrent ownership.) The first is called joint tenancy or joint tenants, and the second is called tenancy in common.
Joint Tenancy: The key fact about joint tenancy is when a when one joint tenant dies, the other(s) become the owner(s) instantly and automatically. This change in ownership interest happens without the existence of a will, and trumps whatever a will may say about who inherits the property. Joint tenancy is popular among married couples who have shared and intermingled assets.
Tenancy In Common: The key fact about tenancies in common is when one owner dies, his or her share of the property passes to his or her heirs. If the decedent has a will and the property is mentioned in the will, the will determines who receives the property. If there is no will, then the property is passed according to state law.
Home Loan Status When Spouse Dies
When someone with a mortgage or other home loan dies, the spouse or children of the homeowner who inherit the property can continue to pay the existing mortgage. This rule is set by a 1982 federal law called the Garn-St. Germain Depository Institutions Act.
The customary rule is when a borrower dies, the lender has the right to foreclose or otherwise demand the estate pay-off the loan. The Garn-St. Germain Act reverses the customary rule when the property interest is transferred to a spouse, child, or relative. Similarly, if the owner was a joint tenant, the bank cannot foreclose just because the deceased owner’s interest is transferred to the other joint tenants.
The bank can foreclose if the mortgage, taxes, or insurance are not paid, the home is sold to a third party or there is a breach of the home loan contract.
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Steps to Take With a Mortgage When a Spouse Dies
A surviving spouse or family should consult with a probate lawyer to learn the proper steps to take to handle the decedent’s debts, and to transfer the decedent’s name from the title to those who inherited the property. The spouse or family may need to file an affidavit accompanied by a certified copy of the death certificate with the probate court to change the name on the title.
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The Garn-St. Germain Act prevents a home loan lender from foreclosing just because a homeowner dies and his or her interest in the home is transferred to his or her spouse, family members, or a joint tenant. Whoever inherits the property must continue to make the monthly loan, property tax, and insurance payments to prevent a foreclosure.