Your home mortgage is likely one of the largest financial obligations you have, and when you pass away, this debt must be resolved. How the debt is handled depends on what steps the deceased took before he died. The debt still stands, and will need to be paid before the lien on the property can be released.
Making Payments
When an individual passes away, his mortgage can pass on to the beneficiary of the estate. In this case, the individual who inherits the house can usually still continue to make payments on the mortgage. The lender may allow the mortgage to stay intact, as long as the payments are still made on schedule. In some cases, mortgages have an acceleration clause which speeds up the payment schedule and requires the borrower to pay the entire mortgage debt at once. If this happens, you will have to pay off the mortgage immediately or risk losing the house to foreclosure.
Estate Funds
When the estate of the deceased individual goes through probate, the probate court looks at the debts and assets involved. Any outstanding debts, such as credit card debt or a personal loan, must be paid off with any money left in the estate. At that time, any money left over after paying the debts could be used to settle the mortgage. In some cases, the executor may need to sell some personal property to raise money for the remaining debts.
Joint Owner
Sometimes a mortgage will be held jointly with more than one person. For example, when a husband and wife own a house together, they are both equally responsible for the mortgage debt. When the husband passes away while the mortgage is still in effect, the wife is still responsible for making the mortgage payment. At that time, if the wife does not have the financial means to make the payment, the lender may consider a loan modification to provide a more affordable loan payment.
Insurance Proceeds
If the deceased individual took the proper precautions for this scenario, you may have purchased a life insurance policy to help with the debt. A standalone life insurance policy would provide the beneficiary of his estate with a lump-sum payout. This money could then be used to pay off the mortgage debt, if the recipient of the money chooses to use it in this way. The deceased may also have purchased mortgage life insurance from the mortgage lender. With this product, the mortgage balance is paid off as soon as the individual passes away.
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