What Happens if You Die with Outstanding Mortgage Debt?

Nobody takes out a mortgage with any intention other than to repay their debt in full during their lifetime, mortgage providers are extremely careful when allocating home loans in order to ensure they are not left chasing unpaid debts.

The worst case scenario cannot be ruled out with any mortgage payer. In which case, what happens if a person dies before repaying their mortgage debt in full?

Responsibility for Covering Unpaid Mortgage Debt

Contrary to popular belief, responsibility for covering unpaid mortgage debt is not automatically transferred to someone else following the death of the primary mortgage payer. Instead, it depends entirely on whether the owner of the property has bequeathed it to someone specific in their will.

For example, a parent may specify in their final will and testament that their home should be passed to one of their children. At the time of their death, the executor of the deceased’s estate will make the necessary arrangements to transfer ownership of the property to the person named in the will.

At which point, the beneficiary becomes the rightful owner of the property, and also becomes responsible for any outstanding mortgage payments. Use this VA loan calculator to get an estimate.

The new owner of the property then has two choices – to either continue making the monthly mortgage repayments, or to sell the home to pay off the mortgage and hold onto any profits generated.

There may also be the option of transferring the outstanding mortgage on the property to a buy-to-let mortgage, subsequently allowing the home to be let out to private tenants. 

What if nobody is Allocated Ownership of the Property?

Complications often arise when no will is left behind by a deceased person, or details on allocation of assets are either absent or ambiguous.

In such cases, the executor of the deceased’s estate will preside over the negotiations that take place between potential beneficiaries. The executor, perhaps with the assistance of a party mediator, will seek to ensure an agreement is reached without the need to take the matter to court.

During these negotiations, those wishing to claim partial ownership of the property will be familiarised with their obligations regarding outstanding debt on the home. Some may choose to sell their ownership percentage of the property to one of their fellow beneficiaries, or opt out altogether due to affordability issues.

In the unlikely event that nobody wishes to take ownership of the property, ownership rights will usually be transferred to the bank or lender. This will subsequently give the lender the legal right to sell the property and recoup its capital. After which, any remaining proceeds will be distributed among the eligible beneficiaries.

Planning Ahead…

Penning a final will and testament is never a particularly appealing thought, but could nonetheless save your loved ones a great deal of time, stress and money.

Planning ahead and acknowledging the possibility of all potential eventualities is therefore essential, just in case the worst should happen at some point in the future.

Craig Upton

Craig Upton supports UK businesses by increasing sales growth using various revenue streams online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to increase traffic. Craig is also the CEO of iCONQUER, a UK based SEO agency and has been working in the digital marketing arena for over a decade. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, DJKit, UK Property Finance, Serimax, Bridging Finance and has also supported UK doctors, solicitors, builders, jewellers, to mention a few, to gain more exposure online. Craig has gained a wealth of knowledge within the digital marketing space and is committed to creating new opportunities working with UK companies.