Handling a Decedent's Mortgage
Lately, we’ve seen a rise in clients having difficulty taking over their loved one’s mortgage. The scenario goes something like this: Client’s dad passes away with a mortgage on his home. Client wishes to continue paying the mortgage on the same terms because of a low interest rate. Client mails a monthly payment check to the bank, but the bank refuses to accept it and begins to drag its feet in communicating with Client.
Why would a bank choose to be difficult in this regard? Who knows. It’s the bank after all. But I should note that our cases have typically involved non-bank lenders and mortgage processors.
So, what’s the best way to handle this situation?
Enter the “Successor-in-Interest” Process
The “successor-in-interest” process is admittedly not well advertised by banks. In essence, a successor-in-interest is the individual who acquires legal ownership of a mortgaged property after the original borrower passes away. Once formally recognized as such by the lender, the bank is required to permit the new “successor-in-interest” to continue making payments on the mortgage under the same terms as the original borrower.
It’s a process with roots in the federal Garn-St. Germain Depository Institutions Act was enacted by Congress in 1982 which prohibited banks from enforcing due-on-sale clauses simply because of a borrower’s death. The due-on-sale clause is a clause in your mortgage or deed of trust that gives the bank the right to foreclose if you don’t pay.
Checklist for Becoming the Successor-in-Interest
This is one of those situations where knowing how to speak the bank’s language can make all the difference. Specifically, knowing how to initiate the “successor-in-interest” process with the bank can prevent an immense amount of headache and stress. Unfortunately, I have seen too many cases where ineffective communication with the bank led to foreclosure actions. We’ve never had a case where we weren’t able to prevent the home from actually being foreclosed in this context, nevertheless having the sheriff show up on your doorstep to serve you with foreclosure action is a great way to ruin your day.
So, to handle it like a pro, use the following checklist:
Notify the Lender. As soon as someone passes away, call the lender (use the number on the mortgage statement) and say: “The borrower passed away. I inherited the home. I believe I’m a successor in interest.”
Provide Documentation. The lender will mail out a "successor-in-interest” packet and require you to complete it and send it back to them along with some additional required documents. Every lender is different, but these documents typically include:
Your Photo ID
Copy of Borrower’s Death Certificate
Documentation to show your relationship to the borrower such as a birth certificate, marriage certificate, or deed showing you as a co-owner.
Copy of Letters of Administration or Letters of Testamentary or an affidavit confirming you as an heir or beneficiary of the borrower.
Await Confirmation. The lender usually confirms your status within 30 days—or asks for any missing items. Once confirmed, you’re officially recognized as a successor in interest.
Be Ready to Catch Up Any Past Due Balance. Be ready to bring the loan current in case you’ve missed any payments since the borrower’s death or the bank has rejected any payments since you weren’t yet successor-in-interest.
What You Can Do Once Confirmed
Once confirmed as the successor-in-interest, you step into most borrower rights—even if the loan is still in the deceased’s name:
Continue making payments and avoid foreclosure
Request payoff statements and escrow details
Apply for loan modification or other loss-mitigation options
Final Thought
Dealing with a loved one’s passing is hard enough without the added burden of navigating mortgage paperwork. Thankfully, the law recognizes that heirs shouldn’t be punished for not being on the original loan. Whether you intend to stay in the home, sell it, or simply keep the mortgage current while sorting out the estate, understanding your rights as a successor in interest is the key to avoiding unnecessary delays and stress.