If a loved one passes away, before you go to the Clerk of Court, you should first contact the bank where your loved one had accounts or loans. This becomes especially important if they have auto-draft payments or a mortgage on property.
Freeze the Account:
In today’s automated world, most bills are set up with an auto pay feature, and lord knows what is hitting that account each month. The best way to prevent a substantial loss of money from the decedent’s estate is to inform the bank. The bank will freeze the Decedent’s account until the Executor or beneficiary/joint owner can withdraw the funds.
What About the bills?
This depends on how the account is set up, who is asking the question, and what type of bill is outstanding. The typical case is that the account is frozen and the creditors, if they want their money, must make a claim against the estate in the probate process. Otherwise, they lose their chance to get paid.
Note that there is an exception if someone else is also obligated to pay the debt as a co-signor or, in the case of a spouse, they can inherit medical debt.
The mortgage company is Obligated to Speak with You
You’ve inherited a home. You know there is a mortgage on the home and you may want to keep it, but you have no idea how much is owed or what the terms are. To make matters worse, when you attempt find this information, the lender informs you that they are unable to give you any information regarding the mortgage. You are stuck with a home and some debt and you have no information on how to proceed.
Unfortunately, this is a reality for many individuals who inherited mortgaged properties. The banks, many times, will withhold information or flat-out refuse to speak with the new homeowners. What these individuals do not know is that the banks and lenders have an affirmative duty to communicate with the heir or Successor in Interest (SI). And the lenders are banking on that lack of knowledge (pun intended).
Per the Real Estate Settlement Procedures Act (RESPA), the lending institution must have a policy whereby they promptly facilitate communications with a potential or confirmed Successor in Interest regarding the property. “Facilitating communications” includes promptly providing all materials necessary to making payments and being evaluated for assumption. Note that this law does not apply to reverse mortgages.
If the lending institution does not have such a policy in place, a complaint can be made to the Consumer Financial Protection Bureau (CFPB). The CFPB has issued comprehensive guidance to lending institutions on how they should structure their policy (Bulletin 2013-12). If the policy is unreasonable or non-existent, they may be found in violation of RESPA.
You as an SI have rights. Do not let a lending institution push you around because you are in a vulnerable position. If they refuse to speak with you, confirm your identity as an SI and do not be afraid to resort to legal action.
You Can Assume the Mortgage
Most mortgages have acceleration clauses. These are provisions that set forth triggering events whereby the entire amount of the loan will be due at once. A common acceleration provision is the Due on Sale Clause. The Due on Sale Clause is typically triggered by any type of transfer of the property—most commonly, a sale. Another type of transfer that, before 1982, could trigger the Due on Sale Clause is the death of the mortgagor.
Pre-1982, there were many occasions where banks tried to enforce acceleration clauses including after the death of a mortgagor. A litany of cases followed wherein litigants questioned the validity of these clauses. In 1982 Congress settled the issue by passing the Garn-St. Germain Depository Institutions Regulation Act. The act confirmed the validity of acceleration clauses but also set forth instances wherein they cannot be enforced. Among these instances were transfers that took place because the death of a joint tenant or tenant by the entirety, or transfers to a relative resulting from the death of a borrower.
Under the same act, the heir may assume the mortgage under the same terms i.e. interest and repayment schedule. The heir may also apply to refinance the loan, if they think they can get better terms.
Thus, if you inherit a home from a relative or through rights of survivorship, you will not be obligated to pay off the entirety of the loan at once, and you are entitled to assume the mortgage.
Conclusion
Your inheritance does not have to be a burden. With the right information, you can become empowered. Here at McIntyre Elder Law, we want to make sure you have the information you need to protect your rights. If you have any questions regarding your inheritance, we are happy to help.
Brenton S. Begley
Attorney at Law
