What Happens to Your Mortgage in Michigan When You Pass Away?
Death is an inevitable part of life, and it's important to plan for it, even when it comes to your assets. One common question that arises after a loved one's passing is, "What happens to their mortgage?" It's a valid concern, as a mortgage is a significant financial obligation tied to a valuable asset: your home. This article, written by the Probate attorneys of Thompson Legal, will help provide a basic understanding of what could happen to your mortgage through out the Michigan probate process.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions it is advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan Probate attorney today.
The Mortgage Remains
It's important to understand that a mortgage doesn't simply disappear when someone dies. The debt remains, and it becomes the responsibility of the estate or heirs to address it.
What Happens to Your Mortgage
When you pass away in Michigan, your mortgage doesn't simply disappear. It becomes part of your estate, and your estate is responsible for paying it off. If you left behind a will, your will would be filed with the probate court, and an executor is appointed to administer your estate. The executor would then take inventory of your assets and debts, including your mortgage, then the executor will use the assets in your estate to pay off your debts, which includes your mortgage.
If you pass away without a will, Michigan law dictates how your assets, including your home, are distributed. While your home is an asset of the estate, the mortgage becomes a liability that must be addressed before the property can be transferred. Thankfully, there are multiple federal protections available for surviving spouses and heirs in probate.
The Due-on-Sale Clause
Many mortgages agreements include a "due-on-sale" clause. This clause allows the lender to demand full repayment of the loan if the property is sold or transferred to a new owner, such as through inheritance. However, there are important exceptions to this rule, particularly for surviving spouses or heirs, especially in the process of probate. The two most notable protections are the Garn-St. German Depository Institutions Act of 1982 and more recent Consumer Financial Protection Bureau (CFPB) rules for “successor in interest.”
The Garn-St. Germain Depository Institutions Act of 1982
The Garn-St. Germain Act is a federal law that provides certain protections for individuals who inherit property with a mortgage. It prevents lenders from enforcing a due-on-sale clause in specific situations, including:
Transfer to a surviving spouse: A lender cannot accelerate the loan or foreclose simply because a surviving spouse inherits the property.
Transfer to a relative: The same protection applies when a relative who will occupy the property inherits it.
Transfer due to divorce: Transfers resulting from a divorce decree or separation agreement are also protected.
This act ensures that surviving spouses and certain heirs can inherit property without facing immediate foreclosure or being forced to pay off the entire mortgage balance.
Successor in Interest
The Consumer Financial Protection Bureau (CFPB) is a federal agency responsible for consumer protection in the financial sector. The CFPB has established rules regarding "successors in interest." A successor in interest is someone who inherits a property with a mortgage. These rules provide certain rights and protections, such as the right to receive information about the mortgage and the potential to assume the loan.
According to the CFPB, a successor in interest is defined as:
...a person to whom an ownership interest in a dwelling is transferred from a borrower, provided that the transfer is:
By devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
To a relative resulting from the death of a borrower;
To a spouse or child as part of a divorce decree or separation agreement;
Through any transfer, with or without the consent of the servicer, in which the servicer receives less than 50% of the total consideration for the transfer of the ownership interest; or
Through a transfer by a borrower to a spouse or child, with or without the consent of the servicer, in which the servicer receives no consideration for the transfer of ownership interest. (See: 12 CFR 1024.31)
These rules aim to protect successors in interest and ensure they have the information and options needed to manage the inherited mortgage. With them in place, an expanded number of surviving members will be able to keep family homes.
Options for Handling the Mortgage
When someone inherits a property with a mortgage, they typically have several options:
Continue making payments: If the heir can afford the mortgage payments, they can simply continue paying the loan as the deceased borrower did.
Assume the mortgage: The heir may formally assume the mortgage, becoming personally liable for the debt. This may be necessary to obtain a loan modification if needed.
Sell the property: The property can be sold, and the proceeds used to pay off the mortgage.
Refinance the mortgage: The heir may refinance the mortgage into their own name, potentially obtaining more favorable terms.
Foreclosure: If your estate cannot afford to pay off the mortgage, the lender may foreclose on the home.
Inheriting a property with a mortgage presents several options, from continuing payments as the deceased borrower did to refinancing in the heir's own name. However, if the estate cannot meet its financial obligations, foreclosure remains a possibility.
Conclusion
Dealing with a mortgage after a loved one's death can be a complex and emotional process. While the mortgage doesn't disappear, there are legal protections and options available to manage the debt responsibly. If you're facing this situation, it's highly recommended to seek legal advice from an experienced probate and real estate attorney. Contact Thompson Legal today to schedule a consultation and discuss your specific needs.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Probate Attorney, please Contact Thompson Legal at (734) 743-1646 to schedule a consultation.
