The mortgage stays attached to the house
A mortgage is a lien on the property, and a death doesn’t release it. Whoever ends up owning the house, whether through probate, a survivorship deed, a trust or a transfer on death designation, takes it subject to the mortgage.
That leaves three ways the loan ends:
- Someone keeps making the payments until it is paid off.
- The house is sold and the loan is paid from the sale proceeds at closing.
- Nobody pays, and the lender eventually forecloses.
A fourth, less common option is a deed in lieu of foreclosure, where the house is handed back to the lender by agreement. The estate’s other assets also matter, because in an Ohio probate estate the lender is a creditor like any other. Ohio’s general deadline for presenting creditor claims is 6 months after the date of death, under R.C. 2117.06.
Federal law blocks the due-on-sale clause after a death
Most mortgages have a due-on-sale clause that lets the lender demand full payment when the house is transferred. The Garn-St Germain Act, 12 U.S.C. 1701j-3(d), carves out transfers the lender can’t use that clause for, on residential property with fewer than five units. The ones that matter after a death are:
- (d)(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
- (d)(5) a transfer to a relative resulting from the death of a borrower;
- (d)(6) a transfer where the spouse or children of the borrower become an owner of the property.
So a lender can’t accelerate the loan only because a son inherited his mother’s house. It can still enforce the loan if payments stop, because the exemption protects against the transfer, not against default.
Servicers must deal with confirmed heirs
Heirs used to hear “we can only talk to the borrower.” Federal servicing rules now address that. Under Regulation X, 12 CFR 1024.38, when a servicer learns of a potential successor in interest, it must:
- promptly tell that person what documents it reasonably needs to confirm their identity and ownership interest;
- promptly make a decision once it receives them, and tell the person whether they are confirmed, need more documents, or are not a successor.
Under 12 CFR 1024.30(d), a confirmed successor in interest is considered a borrower for the servicing rules. That includes loss mitigation evaluation if the heir wants to keep the house but can’t afford the current payment. Typical documents are a death certificate, the will or probate entry, and the recorded certificate of transfer or affidavit.
Taking over the loan versus paying it off
An heir who wants to keep the house can ask to be added to the loan. The CFPB’s 2014 interpretive rule says that when a successor who already holds title is added as an obligor or substituted for the original borrower, that isn’t an “assumption” under Regulation Z, so the full ability-to-repay underwriting rule doesn’t apply to it.
Most heirs in Northeast Ohio sell instead. The common sequence is:
- the executor or heir requests a payoff statement from the servicer (see the payoff statement guide);
- someone keeps the monthly payment current while the house is sold, so late fees and default don’t eat into the equity;
- at closing, the title company pays the lender from the sale proceeds and the rest goes to the estate or heirs.
If the house is worth less than the payoff, the lender can present a claim against the estate for the shortfall, within the R.C. 2117.06 window. Heirs who never signed the note don’t become borrowers just by inheriting. The page on selling for less than you owe covers the options there.
What to send the servicer
Write to the servicer at the address it lists for written requests, and keep copies. A useful first packet includes:
- a certified death certificate;
- the loan number and property address;
- proof of your role: letters of authority if you’re the executor, or a recorded certificate of transfer, survivorship affidavit or TOD affidavit of confirmation if you inherited;
- a request to be confirmed as a successor in interest under 12 CFR 1024.38;
- a request for a payoff statement and the current monthly payment.
Keep paying the monthly amount while you wait, if you can, so the loan doesn’t fall into default.
Special situations: spouses, reverse mortgages and HELOCs
A few loan types and family facts change the picture:
- Surviving spouse. Under R.C. 2106.15, a surviving spouse may stay in the mansion house free of charge for one year after the death, though the house can still be sold within that year to pay the decedent’s debts. The mortgage payment still has to be made.
- Reverse mortgage. A reverse mortgage (HECM) normally becomes due when the last borrower dies, and the heirs’ options are different. See our page on selling a house with a reverse mortgage.
- Home equity line. A HELOC is a second lien that also has to be paid at closing. The HELOC guide explains how both liens are handled.
If the house is in probate and the loan is falling behind, the fiduciary should talk to the estate’s attorney about timing the sale before the account goes into foreclosure. Our probate house sale page explains how a direct sale can close on a date set around the court’s steps.
