This is a question that many will face at some time, whether we are a surviving spouse or heirs to a surviving spouse who recently died. The surviving spouse will ordinarily expect to go on living in the home and the surviving heirs might also expect to continue living in the home or want to move into the home. The elephant in this room is the mortgage company expecting that its mortgage loan will remain secure and that the mortgage payments will continue to be paid on time until the mortgage has been paid off.
Can the surviving spouse or the heirs to the surviving spouse afford to keep or take over the home? Can they afford to make the mortgage payments in addition to property taxes and insurance? Almost all mortgage loan agreements contain a due on sale clause that requires that the loan be paid off upon the transfer of the home to a third party. Many mortgage loan agreements today contain a clause that defaults the loan upon the death of the person who signed the mortgage loan papers. Federal law prohibits the lender from enforcing the due on sale clause on the death of an owner when the title is transferred by operation of law to a co-owner of the property and also transfers to the spouse or children or other relative of the decedent. However in any case, the mortgage payments must be timely made in order to prevent the lender from foreclosing its loan and selling the property to third parties.
If the survivor(s) cannot comfortably pay the mortgage and other required payments, there will be a few months during which the house can be sold before the lender will seriously complain about delinquent mortgage payments. If a successful sale (meaning quick enough and for enough money to pay the mortgage) can be arranged within that period of time, the mortgage can be paid out of the sale proceeds and the balance distributed to the seller. If the house cannot be sold for enough money to pay the mortgage, it should be abandoned to allow the mortgage lender to foreclose and take it over. The ordinary foreclosure process takes at least 120 days to complete, so there won’t be a rush to vacate the house. In almost all cases, there can be no claim against the deceased owner for any delinquency.
Planning ahead makes a lot of sense. The proceeds of mortgage insurance or ordinary life insurance can be used to pay off the mortgage if purchased ahead of time. With such advance planning, the surviving spouse and other family members can continue their life without worrying about a roof over their heads.