Child Can Continue to Make Loan Payments After Death of Borrower
The owner of the home was an elderly gentleman who has now died. His only child now wants to move into the home and make the mortgage payments to the lender. The loan documents have a due-on-sale clause that provides for the acceleration of the entire mortgage loan upon the transfer of home. If the only child becomes the owner of the home, can the lender accelerate the entire loan amount?
Probably not. Unless the elderly gentleman’s will provides otherwise, the only child will become the owner of the home. Although the loan documents may provide for a due-on-sale clause to accelerate the loan, under federal law there are exceptions to the enforceability of a due-on-sale clause in the loan documents. (12 USC § 1701j-(3)(d).)
One of the exceptions is the transfer of title due to the death of the owner of the home. Other exceptions include the transfer of the title of the home due to divorce and the transfer of the title to the home to a revocable living trust.
Note: Lenders in a declining real estate market rarely enforce due-on-sale clauses after the transfer of the title to the home. In addition, even if the lender does enforce a due-on-sale clause, the lender will not usually require payment of the entire loan, but will require only an amendment to the loan documents, e.g., 1% penalty plus ½% increase in the interest rate.
Arizona REALTOR® May 2010