What happens to my mortgage if I die?

If you pass away with a mortgage, the outcome will depend on the terms of your mortgage, whether you have an estate plan, and whether you have living relatives.

The terms of your mortgage may include a provision that “accelerates” the entire unpaid balance upon your passing. This is only available to lenders in certain private loans and commercial loans, and not in most residential mortgages. If accelerated, anyone who would try to make a claim against the property, such as your spouse or children, would need to pay the balance or settle the claim with the creditor in order to obtain title themselves. There are many federal laws protecting families from these types of provisions, discussed in more detail in this article.

If you have an estate plan, your property may be held in trust, may be held with rights of survivorship, or may be devised by will. If it is given to certain qualified persons, they may be exempt from due-on-sale clauses described in the article above. If not, then the lender may have the right to accelerate all of the debt outstanding, and the non-exempt beneficiaries would either have to pay off the mortgage to obtain title, come to an agreement with the lender, or let the lender foreclose on the property and attempt to recover the surplus, if any, after the sale.

Holding commercial or investment property in a business entity, such as a limited liability company may also avoid the “due-on-sale” clause found in most mortgages but may nevertheless include provisions accelerating debt in the event one or more guarantors pass away.