What complicates the matter more, is the presence of a "due on sale" clause that nearly all mortgage contracts contain, which states that when the title of a property is transferred, the remaining balance on the mortgage is due in full. On its face, such language would require that upon any transfer of ownership (e.g., upon the death of the mortgagee), the balance of the loan is due on sale, regardless of the amount of liquidity of the estate. This lack of liquidity quite often results in the need to sell other assets to raise the necessary funds, or at last resort, to sell the underlying property. But in reality, the situation is not nearly as grim, and thanks little known law passed in 1982, there are a tremendous amount of protections for beneficiaries in these types of situations.
- Same-Sex Couples should be real careful in this area, as they will unlikely be considered "relatives" for the purposes under this act. Some form of joint ownership should be considered.
- "Just because you can, doesn't mean you should." Consider the financial resources available to the beneficiary to continue the mortgage payments.
- Last, consider the benefits and options available to actually pay off the mortgage. Even if you would like to keep a certain amount of your estate liquid, life insurance can be an inexpensive alternative to infuse a substantial amount of liquidity into your estate.
In conclusion, don't worry! If you find yourself inheriting a property from a relative or joint tenant, that you will be residing in, the mortgage is yours without fear of being required to refinance or triggering any type of due-on-sale clause. So what do you do should you find yourself in this situation? Call your bank, and ask them for how best to handle the relationship moving forward. They will be able to advise you on their particular processes and procedures, but just know the mortgage is yours.