We often hear from children whose parents have died and they inherited the house that has a mortgage. They want to know if their parent dies but still has a mortgage if they can keep the loan if they make payments. Here is our answer.
Q: My father and I were joint tenants with right of survivorship on our home. He recently died and I would like to stay in my house. There is an existing mortgage on the house, which my father was listed as the borrower.
I did sign papers when we closed on our refinance but was not on the loan at the time. I’ve done a little research into the Garn-St. Germain Act and have questions about assuming the existing mortgage. How do I accomplish this? Will I have to refinance?
I am current on the payments and will continue to pay them on time. I do need to notify the bank of the change, but don’t want to do that until I know my rights.
A: We like that you’ve done some research into your situation and are glad that you found the Garn-St. Germain Act of 1982. Except when it comes to reverse mortgages – and we’re assuming your refinance was not a reverse mortgage, that Act basically prevents lenders from calling a loan due from a deceased borrower’s estate when a close relative keeps the home.
Let’s take a step back. You and your father owned the home and your father was the only person on the loan. When your father died, you automatically became the sole owner of the home. Joint tenancy with rights of survivorship does that – it allows title to transfer from one joint owner to the other automatically upon the death of one of the owners.
On the issue of the mortgage: if, upon your father’s death, you wanted to sell the home, you could do that and you’d pay off the mortgage at the time of the sale. If the interest rate on your dad’s loan is high or you can get a better deal now, you could refinance the loan with a lender of your choice and that new loan would be in your name.
Let’s say that the loan you have is a great deal and you don’t want to refinance. In that case, you really don’t need to do anything. The old loan was in your father’s name and is secured by the home. If you fail to make payments on the loan, the lender still has its security and can foreclose on the home. So, as long as you make all the payments, keep up the insurance and pay the real estate taxes, the lender can’t call the loan.
As you found out, the Garn-St. Germain Act protects a spouse or a child from having the lender say that the loan is now due and force the refinance or sale of the property.
One of the only benefits that we see by having you named on the loan is that the lender would report your on-time payments to the credit reporting bureaus and that would help your credit score and credit history. Given that we don’t know your credit score or credit history, we’re not sure it’s worth the time or hassle trying to see if the lender would be willing to have you “assume” the loan or have the lender “change” the name on the loan. The most likely reaction you’ll get from the bank is that you should pay off the loan and get a new one.
So, if the current loan works for you, and is a better deal than you could otherwise get in the marketplace today, you should keep it. If you find that you can get a better interest rate or a better deal on a shorter loan term, then you should move forward with the refinance.
To our readers: If any of you have been successful changing loans into your own name after the death of a close family relative, please share your story.
Ilyce Glink is the Publisher of ThinkGlink.com. Sam Tamkin is a Chicago-based real estate attorney. They co-write their nationally-syndicated Real Estate Matters column.