by Barbara Nevins Taylor
The sadness of a death in the family is often compounded when there’s a question about who can take over the mortgage of the family home. If your name is not on the mortgage when your spouse or a loved one dies, problems can arise.
If there is an outstanding loan on the property, even if there is a will that transfers the home to an heir, a bank might not want to add the new name to the mortgage. In addition, if you were in this position and wanted to refinance to lower the interest rate and your payments, a bank could refuse.
So the Consumer Financial Protection Bureau (CFPB) stepped in to make things easier for families and allow an heir or heirs to keep the home when a loved one dies.
The CFPB clarified its mortgage rules to insure that “when a borrower dies, the name of the borrower’s heir generally may be added to the mortgage without triggering the Bureau’s Ability-to-Repay rule.”
What’s the “Ability-to-Repay rule?” It’s a rule the CFPB created to prevent banks from making bad loans, as they have in the past, to people who do not have the ability to repay.
The clarification, which allows an heir to skip this vetting process, is important.
CFPB Director Richard Cordray said, “Losing a loved one should not mean also losing your home. Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops. This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”
The rule clarification won immediate praise from consumer activists. Alys Cohen, staff attorney at the National Consumer Law Center, said, “We hope the CFPB will go further and build on its October 2013 guidance to make clear that mortgage companies should accept loan modification requests from successors’-in-interest before requiring that person to assume the debt.”
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