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This guest post was written by Johnathan Baker. You can read more about him at the end of the post! Write for us.

It is a sad thing to consider, but not all that uncommon.

Sometimes a homeowner with a mortgage will die before the mortgage has been completely paid off.

Since mortgages can last 20, 30, even 40 or more years, a lot can happen to a person between the time they start and the time it finishes.

If you are worried about confusion with the house and mortgage if this happens to you or a loved one, here are some things to know…

Details of the Mortgage

In most cases, the details of the mortgage agreement will specify how to proceed should the homeowner pass away. Depending on the family, financial situation, and what has been agreed upon previously, there are a few different ways the mortgage can be handled.

The central issue is to determine how the remaining balance on the house will be paid back. If no person or source of money can be found, the lender may foreclose the property.

Keep in mind that many mortgages contain clauses that will require full payment whenever the mortgaged house is sold or transferred (called the “due on sale” clause). When the property is transferred to an heir, this type of clause would take effect. So you should be prepared to arrange for the hand-over of debt payment soon or find a way to finance the home.

Transferring to the Co-Signer or Spouse

If there was a co-signer on the loan, they may take responsibility for continuing the mortgage payments. In many cases, this is the husband or wife of the homeowner. If they had a life insurance policy, the surviving spouse may use that money to help make the mortgage payments.

Transferring to an Heir

If there was no co-signer or spouse, or if the spouse is unable to afford the remaining mortgage payments, the next person to consider is an heir. If the original homeowner left the house to an heir in his or her will, that heir will have the option to take over the mortgage payments. When no heir was specified, the executor of the estate can look for another family member willing to come forward as well.

Other Liquid Assets

Sometimes, no heir was specified or those that were named cannot afford to pay off the debt directly. However, there may still be ways of keeping the home in the family in these situations. If there is enough money or other assets in the deceased’s estate to fulfill their debts, then the executor of the estate must let the mortgage lender know how the estate plans on paying. While this means that there will be less money available in the inheritance, the home may stay in the family.

On the other hand, if there are not enough assets in the estate to fulfill the debt obligations and if no heir can take over, then there is not much else that can be done. Unfortunately, in most cases like this, the lender will have to sell the house at auction.

All of this is a greater reminder to prepare now, before anything happens. If you’re financially prepared for a tragedy like this, you can focus more on grieving and spending time with loved ones.

About the Author:
Jonathan Baker is working as a consultant for finance and education at Ontario. He keeps himself constantly updated about the latest news and trends in finance world through reading and also shares his insights and about these topics through his blogs. He lives with his wife in Toronto. He can be followed on twitter @Jonatha97039368

Photo Credit: Owl’s Flight

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