Title: What Happens to the Loan on a House When the Homeowner Dies? | Home Guides | SF Gate
Headings: What Happens to the Loan on a House When the Homeowner Dies?
What Happens to the Loan on a House When the Homeowner Dies?
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Foreclosing on the Home

Content: Federal law mandates that a lender transfer the loan to an heir or relative upon the death of a borrower. That heir can pay the lender upon the sale of the house or live in it or rent it while making the mortgage payments. Foreclosing on the Home
If the borrower doesn't repay, because of lack of money or death, the lender can foreclose on the home and sell it to pay off the outstanding mortgage amount. In the case of a deceased homeowner, foreclosing is a last resort if a surviving spouse or beneficiary can't continue the mortgage payments. Lenders would rather have the estate pay off the loan debt than foreclose, as foreclosure is an expensive and lengthy process. Generally, if someone inherits a property and takes over the mortgage, it is because they can afford the payments. If that person defaults, the lender can foreclose on the house and the foreclosure goes on the credit report of the current owner. If a person inherits a property but cannot afford to pay, she will usually choose to sell it to pay off the loan and avoid default. However, if the property is "underwater" (with a mortgage greater than the current value of the home), a beneficiary can decline to accept the property. In that case, foreclosure is the lender's top option, and it has no impact on the beneficiary's credit report.