Explore options for heirs after a homeowner passes away

When a homeowner dies, their mortgage doesn’t disappear—it remains attached to the property. Heirs have several options: assume the existing loan and continue payments, refinance into their own mortgage, sell the property and pay off the loan, or allow foreclosure if the debt exceeds the value. Federal law protects heirs from being forced to immediately pay off or qualify for the existing mortgage. You have time to decide, but payments must continue to avoid foreclosure.

What Happens Immediately

The Loan Doesn’t Disappear

The mortgage is secured by the property, not the person:

• Debt remains attached to the home
• Lender’s lien continues
• Payments are still due
• Interest continues accruing

Notification Process

Who should be notified:

• Mortgage servicer
• Life insurance company (if applicable)
• Homeowners insurance
• Property tax office

What the servicer needs:

• Death certificate
• Proof of relationship/inheritance
• Contact information for estate representative

Grace Period

While most servicers provide some time:

• Payments are still technically due
• Late fees may accrue
• Communicate with servicer immediately
• Request forbearance if needed

Options for Heirs

Option 1: Assume the Mortgage

Keep the home, take over payments:

• Continue existing loan terms
• No need to qualify for new loan
• Protected by federal law (Garn-St. Germain Act)

Requirements:

• Be a relative or heir
• Notify servicer of inheritance
• Provide required documentation
• Keep payments current

Advantages:

• Keep favorable interest rate
• No closing costs
• No qualification needed
• Maintain family home

Option 2: Refinance

Get new mortgage in your name:

• Pay off existing loan
• Qualify for new loan
• Potentially access equity

When this makes sense:

• Want to be officially on the mortgage
• Need to access equity
• Multiple heirs (one buys out others)
• Want to change loan terms

Requirements:

• Meet lender qualification requirements
• Creditworthiness
• Income documentation
• Appraisal

Option 3: Sell the Property

Sell and pay off mortgage:

• List property for sale
• Use proceeds to pay off mortgage
• Distribute remaining equity per will/estate

When this makes sense:

• Don’t want to keep property
• Multiple heirs need to split proceeds
• Property is far from heirs
• Mortgage is too expensive

Process:

• Executor/administrator lists property
• Close sale normally
• Mortgage paid from proceeds
• Remaining funds to estate

Option 4: Allow Foreclosure

Walk away if underwater:

• If home worth less than owed
• No obligation to pay family member’s debt
• Lender takes property

Considerations:

• May be deficiency (owed amount after sale)
• Some states allow deficiency judgments against estate
• Usually doesn’t affect heir’s personal credit
• Consult attorney before deciding

Your Rights as an Heir

The Garn-St. Germain Act

Federal law protects heirs:

• Lender cannot call due-on-sale clause
• You can assume without qualifying
• Applies to relatives inheriting

Protected transfers include:

• Transfer to spouse
• Transfer to children
• Transfer to other relatives
• Transfer to joint tenant

What Lenders Cannot Do

They cannot:

• Demand immediate full payment
• Require you to qualify for the loan
• Refuse to let you assume
• Accelerate the loan due to death

They can:

• Require you to continue payments
• Report late payments
• Foreclose if you stop paying
• Require proof of inheritance

The Assumption Process

Steps to Assume

Step 1: Notify the servicer

• Report the death
• Provide death certificate
• Express intent to keep property

Step 2: Establish your right

• Provide will or trust documents
• Court documents (if probate)
• Proof of relationship

Step 3: Continue payments

• Make payments on time
• Keep account current
• Set up autopay if possible

Step 4: Complete assumption

• Servicer may require assumption paperwork
• Minimal fees (if any)
• Update insurance to your name

Timeline

Step	Timeframe
Notify servicer	Immediately
Gather documents	1-4 weeks
Servicer processing	2-8 weeks
Full assumption	30-90 days

If There’s a Reverse Mortgage

Different Rules Apply

Reverse mortgages become due upon death:

• No ongoing payments were being made
• Loan balance has been growing
• Full repayment is required

Options for Heirs

Pay off and keep:

• Pay 95% of appraised value (or balance, whichever is less)
• Keep the property
• May require refinancing into traditional mortgage

Sell the property:

• Sell at market value
• Use proceeds to pay reverse mortgage
• Keep any excess equity

Walk away:

• If balance exceeds value
• Heirs owe nothing personally
• Lender takes property

Non-Recourse Protection

Reverse mortgages are non-recourse:

• Heirs never owe more than home value
• FHA insurance covers any shortfall
• No deficiency judgment possible

Multiple Heirs

Complications

When multiple people inherit:

• All must agree on course of action
• One may want to keep, others want to sell
• Buyout may be necessary
• Can lead to disputes

Solutions

One heir buys out others:

• Refinance or use savings
• Pay other heirs their share
• Become sole owner

Sell and split proceeds:

• Cleanest solution
• No ongoing joint ownership
• Equal distribution

Partition action:

• Court-ordered sale if can’t agree
• Last resort
• Expensive and time-consuming

Communication Is Key

• Discuss options openly
• Involve estate attorney
• Document agreements
• Consider family relationships

Estate and Probate Considerations

Does Probate Affect the Mortgage?

Probate is required to transfer title:

• Without probate, heir can’t legally own
• Servicer may still accept payments
• Full assumption requires title transfer

During probate:

• Executor manages property
• Mortgage payments should continue
• Property can be sold with court approval

Avoiding Probate

If property was:

• In a living trust: Transfers without probate
• Joint tenancy with survivorship: Transfers to survivor
• Transfer on death deed: Transfers to named beneficiary

Faster access for heirs:

• Can assume or sell more quickly
• Less court involvement
• Lower legal costs

Life Insurance and Mortgage Payoff

If Deceased Had Life Insurance

Options:

• Use proceeds to pay off mortgage
• Use for other needs, continue payments
• Depends on beneficiary and policy terms

Mortgage Life Insurance

If deceased had mortgage protection:

• Policy pays off mortgage balance
• Home owned free and clear
• Check for coverage limits and exclusions

Credit Life Insurance

If purchased with loan:

• May pay off remaining balance
• Check policy documentation
• File claim promptly

Practical Steps After a Death

Immediate Actions

1. Notify mortgage servicer

• Report the death
• Get instructions
• Request forbearance if needed

2. Secure the property

• Maintain insurance
• Continue utilities
• Prevent vandalism

3. Continue payments

• Use estate funds if available
• Personal funds if necessary
• Document all payments

4. Gather documents

• Death certificate (multiple copies)
• Will or trust
• Deed and mortgage documents
• Recent mortgage statements

Within 30-60 Days

• Meet with estate attorney
• Determine heir(s) and their wishes
• File for probate if needed
• Contact life insurance companies
• Decide on keeping, selling or walking away

Tax Implications

Stepped-Up Basis

Good news for heirs:

• Property basis “steps up” to current value
• Reduces capital gains if sold
• Appreciation during deceased’s ownership not taxed

Example:

• Deceased paid: $150,000
• Value at death: $400,000
• Heir’s basis: $400,000
• If sold for $420,000: Only $20,000 gain

Mortgage Interest Deduction

If you assume and pay:

• May deduct mortgage interest
• Must itemize deductions
• Must be legally obligated (or paying on property you own)

Estate Tax

If estate is large:

• Property value included in estate
• Federal exemption is high ($12+ million)
• Some states have lower thresholds

Frequently Asked Questions

Do I have to pay my parent’s mortgage if they die?

No. You’re not personally responsible for their debt. However, if you want to keep the property, you must continue the payments. If you don’t pay, the lender will foreclose.

Can I take over my deceased parent’s mortgage?

Yes. Under federal law (Garn-St. Germain Act), relatives who inherit can assume an existing mortgage without qualifying for a new loan.

What if the mortgage is more than the house is worth?

You have no obligation to pay the difference. You can allow foreclosure with minimal personal impact. The estate may be responsible for any deficiency, but not you personally.

How long do I have to decide what to do?

There’s no fixed deadline, but payments must continue to avoid foreclosure. Most servicers provide some grace period after a death. Request forbearance if you need more time.

Does the mortgage company have to let me assume the loan?

For relatives inheriting, yes. The Garn-St. Germain Act prevents lenders from calling the loan due when property transfers to family members due to death.

What documents do I need to take over a mortgage?

Death certificate, proof of inheritance (will, trust, court documents), proof of your identity and relationship and completed servicer forms.

Can I refinance an inherited home?

Yes, once you have legal ownership (through probate or other transfer). You’ll need to meet standard qualification requirements for the new loan.

Related Articles

• What Happens To Mortgage When Someone Dies
• Mortgage Servicing Transfer: What to Do When Your Loan Is Sold
• What Happens If You Miss a Mortgage Payment? Timeline and Solutions
• Mortgage Forbearance: How It Works and What Comes After