Transferring a Mortgage after Death of Parent
Question: In a recent column you wrote about a mother being able to transfer her Sun City home to her daughter either by beneficiary deed or by a small probate affidavit. If there is a mortgage on the Sun City home at the time of the mother’s death, will the daughter have to pay off the mortgage immediately?
Answer: Probably not. Although most mortgages have a standard due-on-sale clause that requires the mortgage balance to be paid off immediately upon any transfer of the home, most mortgages are governed by federal law. Under federal law a mortgage lender cannot accelerate the mortgage balance in certain circumstances, including upon the death of the borrower if the transfer of the home is to a relative of the borrower. Therefore, after the death of the mother, the daughter as the new owner should be able to continue to make the regular monthly payments on the mortgage.
It is not necessary to refinance a deceased parent’s mortgage or even assume it. Simply notify the mortgage lender about the inheritance to the relative, state that the possession or occupancy of the home will remain with that relative, and that the relative will make all future mortgage payments. After the probate procedure is complete, the relative might need to obtain a new deed in their own name.
Note: The federal law alluded to above is called the Garn-St. Germain Depository Institutions Act of 1982. This law applies only to loans on one-to-four-family residences, and also lists many other transfer exemptions, including:
- a transfer where the spouse or children of the borrower become an owner of the property;
- a transfer into a living trust;
- a transfer on death of a joint tenant;
- a transfer resulting from a divorce decree, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
- the granting of a leasehold interest of three years or less;
- the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
- the creation of a purchase money security interest for household appliances; or
- any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.