If I Am Not on the Mortgage, Can the Bank Foreclose After My Spouse Dies?
My spouse died and I was not on the mortgage, but I did get title to the property from being named as the heir in the will. I am not behind in payments, but the bank sent a notice of intent to foreclose. What can I do to keep the house?
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 you can pursue. Since you 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.
Due on Sale Clause — Full Loan Balance Becomes Due
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 (see below).
You May Be Able to Assume the Mortgage Upon Your Spouse’s Death
Even if there is a due on sale clause in the mortgage, assumption is permitted under certain circumstances. The federal Garn-St. Germain Depository Institutions Act of 1982 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 only works though 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.
Refinance the Loan
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.
(Learn more about refinancing a mortgage loan in Nolo s article Refinancing Your Mortgage in Today’s Market .)
Take Out a Reverse Mortgage
If you don t qualify for a mortgage assumption or a refinance, a reverse mortgage may provide a way for you to keep the home.
What is a Reverse Mortgage?
A reverse mortgage is different from a traditional mortgage in that you do not make monthly payments to the lender to repay the loan. Instead, the loan proceeds are paid out to you in:
- monthly payments
- a line of credit, or
- a lump sum (or a combination of these options).
A reverse mortgage allows you to draw upon home equity in order to receive a chunk of money or monthly income, without having to pay back the loan until you die, move, or sell the home. A reverse mortgage could allow you to pay off the current mortgage and stay in the home without having to worry about making additional mortgage payments (though you will remain responsible for taxes, insurance, and upkeep for the property.)
Eligibility for a Reverse Mortgage
You must be at least 62 years of age to be eligible for reverse mortgage, but there is no credit or income criteria needed to qualify. Also, you’d need to occupy the property as a principal residence and have substantial equity in the property.
(Learn more about reverse mortgages in our Reverse Mortgages area.)
Hiring an Attorney
If your spouse has passed away and you are facing imminent foreclosure, it is recommended that you seek the assistance of a qualified attorney for legal advice about your particular situation.
(To learn the ins and outs of the foreclosure process, and foreclosure procedures in your state, visit our Foreclosure Center .)