The Consumer Financial Protection Bureau has issued new guidelines for banks to deal with the growing problem of unnecessary foreclosures on homes after the named borrower passes away. The problem arises when the person with their name on the mortgage dies and their family must obtain all of the necessary information and access to make sure bills continue to be paid on time. This is problematic in several areas, most notably in the case of mortgages where notoriously difficult bank procedures make it hard for families to gain access to the loan account in time.
There are many problems that a grieving family might face when trying to transfer ownership of a family home that still has a mortgage on it. One example of this is the nebulous requirements that mortgage companies will place on families, often determined by whoever happened to answer the phone and subject to change without regard to the applicable laws. Banks also have a tendency to misplace or misfile documents and then request that the family submit something like a death certificate more than once.
While these requirements are burdensome and waste time, the bigger issue is that during the time that a family is attempting to get control of the mortgage so that they can stay current on the payments, the bank may initiate foreclosure proceedings.
The new guidelines from the CFPB will certainly help this situation by standardizing the process through which banks transfer a mortgage after someone has passed away.
Families can also take estate planning steps to prevent this situation by including crucial account information in their will or another document that relatives will be able to access after they are gone. Older individuals who still have a substantial number of years left on their mortgage may want to go a step further and preemptively discuss this issue with the bank so that they can release appropriate permissions to a designated person. There are other possibilities as well, such as providing for the loan to be paid off in full as a part of the estate plan.
Source: New York Times, “Guidelines Help Heirs Assume and Modify Loans,” Lisa Prevost, Nov. 14, 2013.