What Do I Do With a Mortgage After Its Holder Dies?

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Although most individuals who have outstanding mortgage debts are fairly young, it's not uncommon for mortgage holders to die with significant unpaid balances on these loans. This can seriously complicate the probate process and may demand the services of a seasoned probate attorney. If one of your family members dies with an outstanding balance on his or her mortgage, you'll need to take several immediate steps to avoid making unnecessary outlays or forfeiting real estate assets that could rightfully belong in your family.

First, it's important to remember that your family member's mortgage lender won't automatically initiate foreclosure proceedings following his or her death. Mortgage lenders generally find the foreclosure process to be time-consuming and expensive. These days, the national foreclosure glut makes it even more difficult to achieve a favorable outcome from this process.

In some parts of the county, it may take up to two years for a distressed property to make it to the auction block. Once this occurs, the mortgage company that underwrote the initial loan on the property must hope that an interested buyer is willing to pay a fair price for the property. Otherwise, the lender may be forced to buy back the property and fix it up before selling it through traditional channels.

As such, it's important that your family takes steps to ward off foreclosure. In most cases, this will require nothing more than ensuring that your loved one's mortgage remains paid up from month to month. If you fear that this might represent an undue burden, talk to your family members to determine whether it's possible to shoulder the burden on a collective basis. The upshot to this strategy is that you'll keep a prime piece of property in your family. Of course, you'll need to remember to pay all of the applicable property taxes on your deceased relative's house.

If you would prefer not to keep the house in your family, you'll need to read your deceased relative's will to determine who is eligible to take possession of the property. In most cases, your relative's spouse or children will receive the property's deed. Once this transaction has been finalized, the individual to whom the house has devolved must begin making preparations to sell it. During this time, he or she will need to keep its mortgage up-to-date or risk losing the property to foreclosure. Once the house is sold, its seller will retain the balance of the sale's proceeds after the mortgage lender's cut has been subtracted.

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