Willow and Hearth

When a homeowner dies with a mortgage still open, the people living in the house often get letters and calls from a servicer that has never heard of them. Two federal sources speak directly to that moment. One is a section of the U.S. Code known as the Garn St Germain Act. The other is Regulation X, the mortgage servicing rule the Consumer Financial Protection Bureau keeps at 12 CFR 1024.31 and nearby sections.

Neither one erases the loan. They limit what a lender can demand and require the servicer to deal with the heir.

What the Garn St Germain Act says about the due on sale clause

Most mortgages contain a due on sale clause. Under section 1701j 3 of Title 12 of the U.S. Code, a due on sale clause is a contract provision that lets a lender declare the loan due and payable if all or part of the property is sold or transferred without the lender’s prior written consent. Subsection (b)(1) generally lets lenders enforce that clause despite state law to the contrary.

Subsection (d) carves out exceptions for certain residential loans, which the statute describes as homes with fewer than five dwelling units, along with cooperative stock and manufactured homes. For those loans a lender may not use the due on sale clause on a transfer to a relative resulting from the death of a borrower. It also may not use it where the spouse or children of the borrower become an owner of the property. The same list protects transfers under a divorce decree or property settlement that leave the spouse as an owner, and transfers into a living trust where the borrower stays a beneficiary.

Who the CFPB calls a successor in interest

Regulation X defines a successor in interest as a person to whom an ownership interest in the property is transferred from a borrower, as long as the transfer fits one of five types. Those include a transfer by devise, descent or operation of law on the death of a joint tenant or tenant by the entirety, a transfer to a relative resulting from the death of a borrower, and a transfer where the spouse or children of the borrower become an owner.

The rule then adds a second status. A confirmed successor in interest is a successor whose identity and ownership interest the servicer has confirmed. Under 12 CFR 1024.30(d), a confirmed successor in interest is considered a borrower for the servicing rules in that subpart. The CFPB’s official interpretation of that section adds that this treatment applies even if the successor has not assumed the loan under state law, and that a servicer cannot require a successor to assume the loan before treating them as a borrower. State law still decides whether the person is contractually bound by the loan.

What the servicer has to do

According to 12 CFR 1024.38(b)(1)(vi), once a servicer learns of a borrower’s death or a transfer of the property, it must promptly facilitate communication with any potential or confirmed successors in interest. When it learns of a potential successor, it must promptly work out which documents it reasonably needs to confirm that person’s identity and ownership interest, describe those documents, and explain how to send a written request. After it receives them, it must promptly decide and tell the person that they are confirmed, that more documents are needed, or that they are not a successor in interest.

The written request is covered by 12 CFR 1024.36(i). The request must name the borrower who transferred the interest and give enough information to identify the loan account. The servicer’s answer must include a written description of the documents it reasonably requires and a contact phone number. Because the servicer treats the potential successor as a borrower for the response rules, the general timelines in that section apply, which are an acknowledgment within five business days and a substantive response within 30 business days.

A 2014 interpretive rule from the CFPB, dated July 11, 2014, also says that when a successor is added to a mortgage they already own through one of these transfers, it is not an assumption under Regulation Z, so the creditor does not have to test the successor’s ability to repay before adding them.

What the CFPB says to do first

The CFPB’s consumer page on inherited homes was last reviewed on September 11, 2024. It tells heirs to contact the mortgage servicer, the company that sends statements and tracks payments. It says the servicer may ask for proof of the right to the home, such as the executed will and the death certificate, or a letter from the estate’s executor, and that the proof can vary from state to state.

The same page lists questions to put to the servicer. Ask about your rights and obligations regarding the house and the loan, how to keep making payments, and how to request a loan modification. It also points to HUD approved housing counselors and the HOPE Hotline.

Steps for an heir

Write to the servicer rather than only calling, and name the deceased borrower and the loan number so the request meets the 1024.36(i) description.

Ask the servicer in writing for its list of required documents, and send what it names. The CFPB says that if you are facing foreclosure or have been served legal papers, you may need an attorney.

The CFPB notes that the proof of ownership a servicer accepts varies by state, so check your state’s probate rules. For questions about the estate, the Garn St Germain exceptions as they apply to your loan, or whether a lender can accelerate, speak with a lawyer in your state or a HUD approved counselor. This article reports what the federal sources say and is not legal or financial advice.