What Happens To My Mortgage If I Pass Away?

There are several reasons why everyone should take a moment to understand the answer to this question. Although we have said it before, it is essential to reiterate that estate planning ensures that you don’t pass away and leave complicated financial burdens on your loved ones. Leaving large debts behind, particularly ones as significant as a mortgage, lands in that category.

Even if you never intend on creating an estate plan, the answer to this question could still impact you. 

Example: Your parents purchase a home for $500,000. They owe $400,000 on it when they pass away. Before they passed away, they created a valid and stated they wanted you to have their home. The lender contacts you and says you need to pay the remaining $400,000 or they will foreclose on the property. Do you have to pay for it? Are they legally allowed to demand you to? If you understand what happens to someone’s mortgage when they pass away, then you will have the answer to both questions. 

Mortgages 

Passing away does not eliminate mortgage debt. There are steps in the probate process that exist specifically to ensure creditors can collect on any unpaid debts the deceased left behind. The following sentence is critical: It also doesn’t mean that your mortgage automatically has to be paid in full after you pass away. There were fundamental changes to federal laws to prohibit banks from foreclosing on the home if it is passed down to a descendant. The child who inherited the house with $400,000 left on the mortgage is not obligated to pay that off before taking ownership completely. 

The child can move into the home and take over the mortgage payments on it. If the child cannot afford the mortgage or fails to make payments, the lender can initiate a foreclosure proceeding legally. 

The person creating the estate plan can and should have conversations with their children about what they intend to do with the home when they pass away. Can the child afford to pay the mortgage? The child may likely have to make payments on it while trying to sell it if that is their intention. 

As someone who is receiving the property, you should familiarize yourself with the federal law that prohibits the lender from foreclosing if the balance isn’t paid in full upon the original owner’s death. Someone may mistakenly request it if they are unaware of the law. 

Family First Firm 

Proper estate planning addresses issues before they occur. If you are concerned about managing your estate and disseminating assets properly, contact the team at the Family First Firm. Allow us to give you different options for protecting your family and loved ones through diligent estate planning.

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