After a homeowner dies, the large remaining mortgage balance may entice you to call the lender and negotiate new terms. Unfortunately, it’s not that easy.
Q: My father died of cancer in January 2017. He is the only one on the mortgage with a big box lender. I was a joint tenant with rights of survivorship with him on the title to his home when he died. I am now the sole owner of the home and the title is now in my name.
Before my dad died, his loan balance with the lender was about $75,000 and the home’s value was about $250,000. Can I negotiate with the lender to pay them less than what they are owed seeing that the owner has died?
A: Our condolences on your loss. You should know that you became the sole owner of the property when your dad died. That transfer happened automatically as a function of being joint tenants with rights of survivorship.
Generally, you don’t need to do anything at this point. Whenever you decide to sell the home, you would need to present a copy of the death certificate and you’d be allowed to sell the home and sign your own name.
You can check with the office that records land records where the home is located to see if they need anything other than the death certificate to show that you are the sole owner of the home. But for practical purposes, you usually don’t need to do anything to transfer title into your name.
On the issue relating to the loan, your question implies that the lender would be happy to get any money after the borrower has died. But that’s not how mortgage loan works. The lender will insist on receiving full payment of the balance that is still owed on the loan. If the home is worth three times what is owed on the loan, the lender has the ability to wait until the home is sold to get paid or to foreclose on the home if you fail to make the payments on the loan.
In either situation, the lender will likely get paid back in full what it is owed. When your father took out the loan, he personally promised to repay the loan. At the time he signed the loan papers, he also gave the lender a lien on the property — a mortgage or trust deed. That mortgage or trust deed gives the lender the right to use the collateral — the home — to satisfy the debt. We doubt the lender would simply say that they too are sorry for your loss and for that they would take less than what is owed to them.
If the home was worth less than what was owed on the debt, the lender would take less but given the large amount of equity that exists in the home, you’ll have to pay off the lender. The good news is that the lender will continue to accept payments on the same schedule. Because you now own the home, and you are a relative, the lender will likely be happy to accept the payments from you.
If you do nothing, and don’t continue to make payments, the lender is likely to foreclose on the property and force a sale. Since equity in the property (the difference between the value of the home and the loan amount) today is about $175,000, you have a lot of money to lose by doing nothing. Thanks for your question.