Categories: Mortgage and Housing

Assumption Of Mortgage After Death

Mortgage and inheritance

If the deceased was a mortgage client of the bank, then his death, in addition to grief, brings his relatives considerable trouble in settling obligations under the loan agreement.

The first and most important thing to remember: the existence of a life and disability insurance agreement, without which it is almost impossible to get a loan, does not yet guarantee that the insurance company will take over the solution of problems with the bank. In many cases, co-borrowers, guarantors, or heirs will have to be involved in paying debts.

They won’t pay for everything

At first glance, everything seems simple in insurance contracts: in the event of the death of the debtor or if he receives I or II disability group, the insurance company pays the remaining part of the debt to the bank, and the apartment is removed from the bail. In practice, everything is much more complicated. The problem is that insurers, trying to make their product attractive to the client, minimize the cost of the policy. Tariffs start at 0.2% of the insured amount, and, as a rule, no additional medical examinations of the insured are carried out – it is enough to fill out a short questionnaire.

It is possible to reduce the cost of policies only by reducing payments. Therefore, insurance contracts contain a long list of exceptions that allow insurers not to recognize the death of a client as an insured event. According to bankers, insurance companies refuse to pay off the remaining debts of the deceased in about every tenth case. Most often – in connection with the concealment of a chronic illness, which, according to the insurers, took place at the conclusion of the insurance contract.

But the list of exceptions is much broader. This includes death from radiation, death during or because of participation in hostilities, cases associated with the arrest, detention, imprisonment of the insured. If it happened earlier than two years after the conclusion of the insurance contract, and murder, if it was organized by a person who benefits from the death of the insured. It is not recommended to die from the consumption of low-quality alcohol or drunk driving. Insurance companies will not reimburse the deceased person’s debt to the bank even if the person died because of engaging in dangerous sports – professionally or even at an amateur level.

Collective responsibility

If the insurance company recognized the death as a non-insured event, the obligation to pay off the loan falls on third parties. Let us consider the first situation when co-borrowers were indicated in the mortgage agreement (and this happens quite often, since attracting relatives to the “company” of debtors increases the amount of available credit). “As a general rule, all co-borrowers under a loan agreement are joint and several, that is, they have equal rights and obligations. In other words, the bank does not care which of the co-borrowers makes payments, but in case of non-payment of the loan, the bank will equally turn to all co-borrowers.

The situation with the surety is somewhat more complicated. Logically speaking, the surety pledged to be responsible for a specific debtor, and with his death this responsibility ceases.

Some banks may require the guarantor to fulfill the obligations of the deceased borrower during the period while the issue of recognizing death as an insured event is being resolved (this usually takes 2-3 months) or before the heirs take over (according to the law, this takes six months). However, this does not mean that the guarantor will irrevocably lose money.

All or nothing 

If the insurance company returns the borrower’s debt to the bank, then the mortgage apartment goes to the heirs without encumbrance. If the case is recognized as non-insured, the heirs will pay off the debts.

Suppose for some reason, the heirs do not want or cannot be debtors of the bank. It is enough for them to write a notarized statement of renunciation of the inheritance within six months after the death of the borrower – and the issues with the mortgage loan and the mortgage apartment will no longer concern them. But we must remember that you will have to give up everything at once: it is impossible to accept a dacha, a car, and a yacht, but to exclude only a mortgage apartment from the inheritance.

If the burden of debt turns out to be exorbitant, you can enter into negotiations with the bank’s credit department to restructure payments (for example, to extend the loan term). Another way is to negotiate with the bank on the sale of a mortgage apartment. The proceeds are divided into two parts: the first goes to repay the loan, the second is received by the heirs.

Olivia Chloe

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