What happens ifI leave a home to a person when there is a balance on the mortgage?

The person has a bankruptcy and cannot get a loan. However, they are helping pay half of my mortgage and there is no mortgage insurance to cover the remaining balance.

Asked on March 24, 2011 under Estate Planning, Ohio


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

In a situation such as this, the options are: sell the house and pay off the mortgage; re-finance the mortgage; take over the house and continue making the monthly payments yourself.  While this last option appears to be the best for the beneficiary in this case, it is only available if: (1) All other debts of the estate are paid (if not, the house would have to be sold to pay off the mortgage with any excess funds going to pay off estate debt), and (2) The mortgage does not have an "acceleration clause"not that is specifically triggered by the death of the owner.  That is a provision that allows the lender to demand immediate payment in full of the remaining balance of a mortgage loan on the occurrence of a specific event (in this case the mortgagor's death).  If neither of these 2 exceptions apply, the lender is required to continue to accept the beneficiaries monthly payments until the maturity date. 

Note:  If the maturity date is years later, then it is of benefit for the person who is inheriting in that they do not have to go through the lender's application process and prove that he or she qualifies for the mortgage.

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