By: Lance T. Denha, Esq.
In the event of the death of a spouse, there are certain instances when the surviving spouse is forced to show a lender that they have rights associated with their property and mortgage. This typically occurs when the surviving spouse either was not included in the Original Mortgage and Note or did not have an estate plan in place (as this will always ensure no issues upon death). Should this occur, the surviving spouse now does not have the protection necessary to ensure a simple and quick transfer of mortgage rights with the lender. If this is not established quickly and efficiently, the surviving spouse may indeed be facing a foreclosure.
If the mortgage had a due on sale clause (most do), then the lender can foreclose when your spouse dies. But there are a few different options that the surviving spouse can pursue. Since the surviving spouse inherited the house from your spouse, you may be eligible to assume the mortgage under federal law. Alternatively, you may be able to refinance the mortgage. Another possible option is to take out a reverse mortgage to pay off the existing mortgage.
The reason the lender sent a notice of intent to foreclose is most likely because of a “due on sale” clause in the mortgage. (Mortgage contracts often contain a due on sale provision.) This clause states that if the property is sold or conveyed to a new owner, then the full loan balance will be accelerated and the entire balance of the loan must be repaid. If there is a due on sale clause, the mortgage usually cannot be assumed, but there are exceptions.
Even if there is a due on sale clause in the mortgage, assumption is permitted under certain circumstances. Federal law prohibits enforcement of a due on sale clause in certain cases, such as where the transfer is to a relative upon the borrower’s death. Even if your name was not on the mortgage, once you receive title to the property and obtain lender consent, you may assume the existing loan. This option very well may require obtaining approval from the county probate court whereby filing a petition in the court is necessary. This option works if you can afford to continue to make the mortgage loan payments.
If you want to keep the house, you will have to obtain lender approval by showing that you have sufficient income to make the monthly payments. If you want to assume the loan, you should contact the lender or loan servicer (the company you make the payments to) to find out if you are eligible.
Another option that would allow you to stay in the house is to refinance the loan. You will have to rely on your own credit and finances to obtain the new loan. (The mortgage lender will examine your income, credit, assets, employment history, and residence history.)
If you qualify for a refinance, not only will you be able to stay in the home, you may be able to:
- get a lower interest rate
- extend the loan term, and/or
- lower the monthly payment.
As discussed earlier, the best way to avoid these issues down the road is to seek out experienced estate planning attorneys and/or real estate/mortgage licensing professionals to make sure that in the event of death, the lender will not cause any problematic issues with the mortgage post spousal death.