What Happens to a Mortgage When the Mortgagee Dies?

Mortgage Holder

A mortgage is a loan to purchase a piece of property, often a home. The lender holds the title to the property until the mortgage debt is settled in full or through other agreements. The homeowner must make regular payments until he pays the loan in full. When the mortgagee dies, things can become complicated, especially if the individual did not leave a will that outlines her wishes. There are several scenarios that could play out. If a mortgage is in the name of more than one person, and one of the mortgagees dies, the remaining mortgagee is still held responsible for repaying the debt. That individual will assume full ownership of the property, in most situations.


Estate Pays

In most situations, the debts of an individual are paid from the estate of the person who has died. A mortgage is a debt that falls under this situation. Money from accounts such as savings, insurance policies or other assets is cashed out to pay for any debts the individual has, including the mortgage. For example, if an individual has a savings account, the funds from the account may be removed and used to pay off the mortgage.

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Not Enough Estate Value

When there is not enough money in an estate to pay off all debts, the mortgage lender will foreclose on the property to reclaim it. The lender will then sell the property to pay off the mortgage. It is important to note that debts do not pass on to heirs. If the heirs wish to keep the home, they will need to pay off the mortgage either in cash or through a new home loan.


Will Stipulations

If the mortgagee had a will, it may outline how the home is to be paid off. For example, there may be a life insurance policy that is to be used to pay off the mortgage on the home at the individual's death so that her family can remain in the home. The executor of the will is required to make payments on the mortgage from the estate until a settlement can occur. The will outlines any wishes the homeowner had prior to her death.

Second Mortgages

Second mortgages are similar to first mortgages. They are secured to the home and therefore must be paid off if the property is to remain. If not, the home is sold to repay both the first and second mortgage on the home.