Should I Pay Off the Mortgage if I’m Single with No Heirs?

Hold on a minute. Are you sure you have no heirs?

Somebody in an extended family is nearly always tracked down when someone dies intestate.

Of course, that doesn’t rule out the point of your question. Let’s take a look at the person who dies with a mortgage loan balance — but without naming a relative to take over the mortgage.

Debt After Death: Is Anyone on the Hook for the Mortgage?

When a deed holder dies, the estate is administered in probate. There, a judge removes the deceased owner from the title. An executor’s deed (or administrator’s deed, if there’s no will) transfers the title to its next owner. The deed is signed and notarized. A copy is filed with the county recorder of deeds.

But first, the assets in an estate are tapped to pay off its debts. Parties owed money (creditors) will get their due before leftover assets can be distributed to the heirs. So, what happens to the mortgage loan?

First, ask: Was there a co-signer or a co-borrower?

If so, the answer is straightforward. Your co-signer must repay the mortgage (whether or not they have ownership, and whether they are related to you or not). Co-signers step into the borrower’s shoes and must treat the unpaid debt as their own.  

No co-signer? Then nobody’s on the hook for the home loan, according to leading mortgage company Rocket Mortgage.

So, debts aren’t “inherited” unless co-signed. That said, the bank still has a claim. It will foreclose the home to recover the balance if possible. So, if you want to pass your home to someone else, you can assume that the company holding what’s left of the loan will be looking to get its outstanding balance back.

What If You Knowingly Leave Someone a Mortgaged Home?

The person you leave your home to can opt to keep it, or not. Have a conversation ahead of time. Be sure your beneficiary is prepared to accept your deed after you pass, and prepared to take over any home loans you might have, too.

The person to whom you bequeath your home should consult an attorney — not simply ignore secured debt. A lawyer can read the mortgage documents and guide the new deed holder through what’s expressly required after a borrower’s death. Your will can indicate whether your beneficiary is to get the deed subject to the mortgage, or whether the loan is to be resolved with other assets in the estate.

If a surviving family member is your beneficiary, they will likely arrange to take over the mortgage payments — at least until they sell the home. If they don’t wish to sell, they may legally be allowed to keep the house and pay the mortgage.

Read on through the next sections for more about family members’ legal rights.

To finalize the transfer of a real estate interest, your will’s named beneficiary must file the new deed with the deed recorder’s office in the county or city where the property exists.

What If You’re the One Inheriting the Deed?

Under the watch of the probate court, debts are paid out of the estate and the remaining assets, including the home, will go to those named in the will as beneficiaries.

You’ll receive the title through a notarized deed from the probate court. You, together with the administrator who transfers the deed out of probate, will sign the document. It will then be recorded with the county.

If you happen to be the heir, receiving a deed from a loved one, you can ask the loan servicer to let you take over the late owner’s debt and continue paying the mortgage off. A loan modification could be possible if you ask the loan servicer and the lender agrees.  

As a loved one receiving the interest from the deceased (that is, a “transfer to a relative resulting from the death of the consumer” under 12 CFR § 1026.2(a)(26)), you have the right to stay and pay. You do not need to pay off the late owner’s whole loan at once, apply for a new loan, and start financing the home with a new mortgage. Why not? Because the Garn-St. Germain Depository Institutions Act, passed in 1982, lets home loans be paid by a “successor in interest” who wants to use the home as a primary residence.

What Does It Mean When Assets Are Passed by “Intestate Succession”?

Say the deceased person never wrote a will. This is where “intestate succession” happens.

First, are you sure? The probate court will direct a good-faith search for the late homeowner’s will.

If the search concludes and the court determines that no will was written and executed according to the state’s requirements, then the probate court deems the deceased intestate. That is, if it can be confirmed that no will is available, the court turns to the state’s law that lays out who inherits the property.

Generally, these “intestacy” laws only seek out legal relatives, and distribute the estate’s assets to the first traceable heir on the list.

Most deed holders don’t want the state to determine where their assets go. They explain their intentions by writing their wills.

In the unusual situation where neither a will nor any close or distant relatives can be found, then any value in the estate “escheats” to the state. We break this down in our article on escheat homes and the bizarre business of heir-tracing.

Do Heirs or Testators Need to Hire Lawyers?

If all goes according to plan, no. The best case is a smooth transfer after a deed holder passes away, with the probate court having zero doubt as to where the assets must go. A valid and clear last will can make it happen. Anyone who reads the will should be able to understand what its writer expected the named beneficiaries to do with the deed to the home and the mortgage.

That said, if potential heirs challenge a will, or the will falls short of the state’s requirements, then the probate court determines the best way to distribute the assets. Interested parties are welcome to testify about their claimed interests. Those in the position to hire probate lawyers typically put forth the strongest factual cases as they interact with state law.

Wondering if you’re responsible for a deceased person’s debts? Seek legal guidance. And if you’re making plans for your estate, keep this in mind. The law will be state-specific, and state lawmakers may change the law from time to time. This means you’ll want an experienced attorney in your state if you have doubts about whether your wishes might be challenged in the local court.