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What Happens to a Mortgage After Death

What Happens to a Mortgage After Death

By: Barry E. Haimo, Esq.

November 12, 2019

Owning a home has always been a part of the American dream. It’s often a person’s largest asset. In the wake of the mortgage crisis, however, we began seeing this asset shift… into the liability column.  

In light of the sharp increase of retirees still holding mortgage debt, we get this question from our estate planning clients more and more frequently: What happens to my mortgage after I die?

The simplest answer is that the remainder of the mortgage balance becomes the responsibility of whoever inherits it. Of course, that’s just one possibility. 

Here are the mortgage scenarios we encounter most often, and some of the common ways we can help you manage them through your estate planning efforts. 

Scenario #1: Your Estate Pays the Remaining Mortgage

The most ideal situation is that your estate has enough funds so that it is possible for your executor to simply pay off the remainder of the mortgage balance when you die. 

For example, the verbiage in your will or trust might include a directive to sell certain assets in the estate to satisfy the debt. Another estate planning option would be a mortgage protection insurance policy. Having one would automatically pay any balance.

Neither of these options is perfect for every estate. Strategies depend upon individualized considerations such as the amount currently owed, estimated payoff date, and your age at the time of planning.

For instance, a mortgage protection plan is often quite costly. It’s something that often makes more sense when you know your heirs wouldn’t otherwise be able to cover the mortgage.

Scenario #2: Your Heirs Assume (or Refinance) the Home Loan

While most mortgage contracts contain clauses allowing the lender to demand payment immediately and in full upon the transfer or sale of the home, death is different. A transfer due to your passing is exempt from “due-on-sale” or “acceleration” clauses.

In most situations, federal law will allow your heirs to have the remaining mortgage transferred into their name(s) at the same interest rate and monthly payment you’ve been paying. 

Depending on the mortgage interest rate you secured upon purchase, your loved ones may even opt to refinance the balance in order to enjoy a reduction.

In either case, this is the second-best scenario. It does still require planning on your part, however. If you wind up having other unpaid debts, or there simply isn’t a way for them to cover the monthly payments, this may become a less than ideal inheritance. 

Scenario #3: Legitimate Creditors Seize Your Home to Pay Debts

Regardless of your intent to leave this life debt-free, sometimes that just doesn’t happen. What you can do, however, is plan your estate according to your current circumstances. 

This is important because, ultimately, it doesn’t matter that the home you’re leaving your beneficiaries is free and clear if you’ve also left other unpaid debts

Note, homestead is exempt from most but not all creditors. Homestead is very complicated in Florida.

The way to avoid the pitfalls of mortgage and other debts altogether after death is with the help of an experienced estate planning firm like Haimo Law. 

We look at your personal situation and offer unique advice based on our extensive experience in planning estates so that our clients’ legacies flourish.

Whether drawing up your very first will or trust or answering whatever questions you have, we are happy to help you with the important work of planning your estate.

Author:

Barry E. Haimo, Esq.

Haimo Law

Strategic Planning With Purpose®

Email: barry@haimolaw.com

LinkedIn: http://www.linkedin.com/in/bhaimo

Google+: https://plus.google.com/u/0/+BarryEHaimoLaw/posts

YouTube: http://www.youtube.com/user/haimolawtv 

YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.

Owning a home has always been a part of the American dream. It’s often a person’s largest asset. In the wake of the mortgage crisis, however, we began seeing this asset shift… into the liability column.  

In light of the sharp increase of retirees still holding mortgage debt, we get this question from our estate planning clients more and more frequently: What happens to my mortgage after I die?

The simplest answer is that the remainder of the mortgage balance becomes the responsibility of whoever inherits it. Of course, that’s just one possibility. 

Here are the mortgage scenarios we encounter most often, and some of the common ways we can help you manage them through your estate planning efforts. 

Scenario #1: Your Estate Pays the Remaining Mortgage

The most ideal situation is that your estate has enough funds so that it is possible for your executor to simply pay off the remainder of the mortgage balance when you die. 

For example, the verbiage in your will or trust might include a directive to sell certain assets in the estate to satisfy the debt. Another estate planning option would be a mortgage protection insurance policy. Having one would automatically pay any balance.

Neither of these options is perfect for every estate. Strategies depend upon individualized considerations such as the amount currently owed, estimated payoff date, and your age at the time of planning.

For instance, a mortgage protection plan is often quite costly. It’s something that often makes more sense when you know your heirs wouldn’t otherwise be able to cover the mortgage.

Scenario #2: Your Heirs Assume (or Refinance) the Home Loan

While most mortgage contracts contain clauses allowing the lender to demand payment immediately and in full upon the transfer or sale of the home, death is different. A transfer due to your passing is exempt from “due-on-sale” or “acceleration” clauses.

In most situations, federal law will allow your heirs to have the remaining mortgage transferred into their name(s) at the same interest rate and monthly payment you’ve been paying. 

Depending on the mortgage interest rate you secured upon purchase, your loved ones may even opt to refinance the balance in order to enjoy a reduction.

In either case, this is the second-best scenario. It does still require planning on your part, however. If you wind up having other unpaid debts, or there simply isn’t a way for them to cover the monthly payments, this may become a less than ideal inheritance. 

Scenario #3: Legitimate Creditors Seize Your Home to Pay Debts

Regardless of your intent to leave this life debt-free, sometimes that just doesn’t happen. What you can do, however, is plan your estate according to your current circumstances. 

This is important because, ultimately, it doesn’t matter that the home you’re leaving your beneficiaries is free and clear if you’ve also left other unpaid debts

Note, homestead is exempt from most creditors.

The way to avoid the pitfalls of mortgage and other debts altogether after death is with the help of an experienced estate planning firm like Haimo Law. 

We look at your personal situation and offer unique advice based on our extensive experience in planning estates so that our clients’ legacies flourish.

Whether drawing up your very first will or trust or answering whatever questions you have, we are happy to help you with the important work of planning your estate.

Author:

Barry E. Haimo, Esq.

Haimo Law

Strategic Planning With Purpose®

Email: barry@haimolaw.com

LinkedIn: http://www.linkedin.com/in/bhaimo

Google+: https://plus.google.com/u/0/+BarryEHaimoLaw/posts

YouTube: http://www.youtube.com/user/haimolawtv 

YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.



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