Joint Owner With Survivorship Rights, Not on the Mortgage

Perhaps your home’s deed is vested as JTWROS, but the joint owner is not on the mortgage. Will this be an issue if you pass away before your final payoff? This is a common situation for joint deed holders.

The good news? This is not complicated. When a property is held by joint tenants with the right of survivorship, the surviving co-owner receives the late co-owner’s interest in the home. The interest transfers by operation of law—meaning the property won’t have to go into probate court.

Your loved one may continue to live in the home if you’re first to pass away.

How the Loan Works

So, will your loved one have to immediately pay the lender off? More good news. A family member is protected in this situation. The loan can pass to the survivor and keep going. This happens thanks to a federal law called the Garn-St. Germain Depository Institutions Act of 1982.

Under the law, a mortgage company cannot demand a full payoff when full ownership transfers to your loved one after your death. Read the federal rule under which your lender treats your loved one as a successor in interest with rights in the loan. Your loved one gets a reasonable time period to become the named party on the loan agreement, and to apply for loan modifications.

Affordability Matters

A joint owner who cannot continue paying the mortgage alone might have to sell the home to pay off the loan. If this is a concern, you might consider:

• Mortgage life insurance. Separate from standard life insurance, this can shield your loved one from weighty housing costs. Speak with your insurance broker to learn more.

• Downsizing sooner rather than later. Proceeds from your home sale can free up funds, enabling your surviving joint owner to take care of bills in your absence.

After one joint owner passes, the survivor should take the deceased owner’s name off the title. Advance communication with the lender is key. Once the surviving owner is known to the lender as the party responsible for the loan, the lender should be on board with the new status quo. 

Speeding Up Your Pay-Off: Yes or No? 

Speeding up your mortgage payoff could make sense. In some states, this gets you a higher homestead exemption, so do check on that. Also on the to-do list: Check for the process of obtaining a certificate of satisfaction. Will your lender file it with your county recorder of deeds? If not, you might need to pay a fee and have the county release the mortgage lien.

Within 20 days after your final payment, the lender will close the escrow account. Look for your refund of the money that won’t be used. Set up regular payments for insurance and property taxes, now that they won’t be taken out of escrow. And don’t forget that the insurance company needs to know you’re the direct payer and the lender’s claim is off the deed. Plan for making direct property tax payments.  

In some cases, an early payoff won’t make sense. That’s money that could be used for unexpected needs. It’s an individualized decision.

If your home is in a deed of trust state, the deed of reconveyance is what you’ll get in place of a deed of release of mortgage.

All the Right Moves

Consider adding your loved one as an authorized party on the mortgage now. That may save time and paperwork later. Call your mortgage company for guidance.  

State laws, loan rules, and your household situation will all come into play as you make decisions to protect loved ones in the case of your passing. For sound advice that matches your own circumstances, we recommend consulting with a lawyer experienced in estates and trusts.   

Planning things out for a joint owner is a key process for anyone who co-owns a home. We hope this discussion helps you prepare to make all the right moves.