In 2008, I moved in with my 80-year-old father. He recently passed away, and I inherited his condominium and the $150,000 mortgage. I want to remain in the condo and continue paying the mortgage.
My lawyer wants me to be aware that the lender may demand full payment on the note. I am retired, and my only source of income is Social Security and my $60,000 inheritance. I believe I would not be approved for a mortgage. It has been four months, and I have heard nothing from the lender.
First, we offer our condolences on your loss.
We think that you aren’t getting the full information you need about your situation.
Generally, a lender grants a loan to a particular person and when that person sells the home, the lender expects repayment of the loan. The lender would argue that it made a loan based on the credit repayment ability of a specific borrower and didn’t intend that the borrower could sell the home without repaying the loan.
You might have heard your attorney say that your lender has a “due-on-sale” right under the mortgage. In other words, a clause in your loan documents states that upon the sale of the property or transfer of ownership the lender has the right to call the loan due. If the borrower fails to pay the loan back, the lender has the right to commence foreclosure proceedings to force the repayment of the loan.
Your situation is quite different. Your father didn’t sell his condo. You obtained title to the condominium as a result of your father’s death.
More than 30 years ago, the federal government passed a law — the Garn-St. Germain Depository Institutions Act — that prevents lenders from enforcing a due-on-sale clause under certain circumstances. One of these circumstances is precisely yours.
The law prevents lenders from forcing the sale of a home through a due-on-sale clause in situations in which there is a death and the property is transferred to a relative, a transfer between spouses or from parents to children, a transfer as a result of divorce or legal separation, or when a person decides to transfer his or her home into a living trust for estate planning purposes.
While our summary does not follow the exact language of the law, the law is there to protect owners from having lenders use the due-on-sale clause in those general circumstances.
You don’t have to worry about your situation, and you don’t have to do much. You should also know that your father’s debt became the debt of his estate. The debt is still secured by the home, but you don’t have to have the debt “changed” into your name or assume the debt.
You do need to make sure that the homeowner’s insurance tracks the ownership of the home.
If the home is now in your name, you need to make sure that you have homeowner’s insurance on the home and that you comply with the terms of the loan and have the lender named as a mortgagee insured on that insurance policy.
Ilyce R. Glink ’s latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a Chicago-based real estate lawyer. If you have questions, you can call Glink’s radio show (800-972-8255) any Sunday from 11 a.m. to 1 p.m. Contact Glink and Tamkin through the Web site www.thinkglink.com.