Continuing Payments on a Mortgage After a Relative's Death

01.03.2024

Author:  Attorney Thomas J. Casey

Often, a mortgage has a provision called a “Due on Sale Clause”.  This provision allows a bank to demand payment in full upon a transfer of an interest in the mortgaged property.  This would normally include a transfer made to a relative upon the death of a borrower.

However, under a Federal law known as the Garn St. Germain Act, banks are prohibited from demanding immediate payment on a residential mortgage loan based upon a transfer of property made to a relative resulting from the death of a borrower.

Under the Garn St. Germain Act, when family members inherit a property, they can continue the deceased’s mortgage payments without refinancing.  This right is particularly significant for heirs who might not qualify for a new loan.

This right may also result in a significant advantage for heirs who want to continue paying on an existing mortgage with low interest, especially since interest rates have recently increased substantially.  For example, a relative who inherits real estate subject to an existing mortgage with an interest rate of 3% is allowed to continue with that mortgage rather than being forced to refinance at current rates, which likely exceed 7%, or even higher interest.

Also, since the inherited mortgage is not in the heir’s name, payments on the mortgage do not impact the heir’s credit score.

For assistance with issues involving the terms of a mortgage and continuing payments on an existing residential mortgage loan after a relative’s death, consider consulting with an attorney familiar with the Garn St. Germain Act.