1 Answer

This question typically arises when, upon the death of a relative that owns property, the heirs wonder if they must refinance or otherwise payoff the mortgage on the property they inherit.

Essentially nothing happens to a mortgage on residential property with four or less units when any or all of the persons obligated on the loan loan die. The mortgage remains a lien on the property that secures the loan. Of course if the payments on the loan are not made the lender can foreclose.

In most cases the executor or administrator of the estate of the deceased continue to make payments to avoid the lender foreclosing on the property. When the estate is settled and the ownership of the property is transferred to the heirs, it is subject to the lien on the property. So the owners that inherit the property are obligated to make the payments or the lender can foreclose. But as long as the terms of the loan are being met the lender cannot accelerate the note or mortgage and the owners of the property cannot be required by the lender to refinance or otherwise payoff the mortgage in any way other than that proscribed by the mortgage note.

Federal law prohibits a lender from enforcing a due-on-sale clause and accelerating the note due to the transfer of ownership to a relative from the death of a borrower. A due-on-sale clause could more accurately be described as a due-upon-any-type-of-transfer-of-ownership clause to be more accurate, but as the link below illustrates there are certain instances where a due-on-sale provision in a mortgage cannot be enforced. One of these is "a transfer to a relative resulting from the death of a borrower."

Preemption of due-on-sale prohibitions

Note that this is general information only and is not legal advice. For any specific situation consult a competent attorney that specializes in estate and/or real estate law.