You’ve Inherited Property with a Mortgage, Now What?

September 6, 2014

Inhertied PropertyHearing that you’ve inherited real estate is the good news. Then there can be uncertainty about what an existing mortgage might mean.  Many fear they have to get a new mortgage on their name, that they won’t be able to, and that they will lose the property if the lender calls the loan.

The Consumer Financial Protection Bureau (CFPB) recently issued a rule that should ease concerns and provide clarity about existing mortgages on inherited property. Heirs who have taken title to property are not required to show the ability to repay the loan before being added as a borrower to the loan account.

When a person seeks to obtain a new loan the lender must determine that the prospective borrower can reasonably be expected to repay the loan. The CFPB explained that the Ability-to-Repay requirements that new borrowers must face do not apply when an heir who has inherited real estate seeks to add his or her name as a borrower on the existing mortgage. Family members should also know that under federal law creditors are prohibited from exercising a due-on-sale clause when title to real estate transfers after the owner’s death.

The CFPB ruled that a lender can add an heir without first determining whether the heir is reasonably able to repay the loan. This saves family members both the time and hassle of either proving they can repay the loan or, if they cannot, rushing to make alternate arrangements.

Although an heir inheriting property does not inherit personal liability for the repaying the mortgage, the lender can, and will, foreclose on the property if the loan is not repaid.

Once an heir takes title to the property it can be advantageous to be added as a named borrower on the loan. By being named as an additional borrower it is generally easier for heirs to then obtain loan account information and seek modification of the loan if necessary.

If you need mortgage help or have other questions, the CFPB offers links to free assistance.

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