I was recently asked this question by a client and thought more people would find the answer informative. As a general rule... a mortgage follows the home. But, more may go into it. Here are six (6) possible scenarios:

1) The heirs take over the loan:
Although most loans contain an acceleration clause or due-upon-sale clause, transfers upon death are generally exempt. Depending on how the property was titled, this means that your heirs (spouse, children, etc.) would take ownership of your home provided that they continue to make the monthly payment on the mortgage with the same interest rate and payment that you had prior to death. Depending on the circumstances, your heirs may still have to open probate and file a will, but they may be able to keep the property if they can pay the mortgage.

2) The heirs refinance the loan:
If your heirs are unable to make the monthly payments you made prior to death and want to keep the home, then they may be able to refinance the property and keep the home. However, this is dependent on how the property was titled, whether the mortgage interest market is financially beneficial, and whether they qualify for a new loan.

3) The heirs take the property free-and-clear:
If  your estate has enough funds to pay-off the loan, your heirs may do so and take the property free-and-clear. You may have to direct your estate plan to reflect what property is to be sold to pay-off the mortgage, and/or appropriately plan for succession of your estate and property. A mortgage protection life insurance policy may also provide for this scenario.

4) The heirs cannot afford the monthly payments:
If your heirs cannot take on the financial burden to stay current with the monthly mortgage payments and are unable to refinance the property in their own names, they may either: sell the property, attempt to modify the mortgage, or discharge the debt.

5) You took out a reverse mortgage prior to your death:
A reverse mortgage is a lien on the home. Should there be no co-borrower at the time of your death, or the co-borrower is no longer living in the home, than the loan comes due upon your death. Your heirs will only inherit the property if the reverse mortgage can be paid-off without selling the property. They may have to pay-off the balance with assets from your estate, another source of funds, or take out a new loan. More likely however is that your heirs will inherit whatever equity is left after the home is sold and the reverse lender is repaid.

6) The home is seized to pay other debts:
If the property is free-and-clear of any mortgage, and not properly titled to avoid probate, than it is possible that the property will become an asset of the estate and used as collateral to pay-off other debts of the deceased. If this is the case and your heirs want to keep the home, than they may have to re-finance the property to pay-off the other debts, or use their own funds to pay-off those other debts.

In any event:
Because of the above possibilities, it is important that you consult an attorney in your State to discuss your specific situation, estate plan, and the title of your property. Your heirs should also consult an attorney to discuss their options if they are not able to take the home free-and-clear.

The Warner Law Group is available for free consultation and can be reached at: This email address is being protected from spambots. You need JavaScript enabled to view it. or (630)446-0087.

The above has been provided for general informational purposes only. In no event does the above information constitute an attorney-client relationship or presume the giving or receipt of legal advise.