What happens if both spouses aren't on the mortgage NOTE and one dies

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Hi there, we are trying to decide if both of us should be on the promissory note for the mortgage or just one of us.
- Most importantly, if the note is only in one name and that spouse dies, can the other spouse continue paying without refinancing or will they foreclose on you?
-if there is no more rent payment, will the spouse not on the mortgage start losing credit score if the only other source of credit is a credit card
- What are the pros and cons of each
Factors:
We both have excellent credit and no current debt
Both are currently on the credit card (always paid off each month) and the rent for the house we are in now
We both have income, though the husband has the main and the wife is supplemental (both self-employed)
We would both be on the deed
We do NOT live in a community property state†


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I bristle every time I see this. †The lender doesn't own the home, "technically" or otherwise.

The home is only collatera... (more)

dcwilbur (Mar. 20, 2017 @ 7:38p) |

That is what he said.
Where is the misunderstanding?

forbin4040 (Mar. 20, 2017 @ 8:31p) |

There is no misunderstanding anymore as far as I'm concerned. I was merely summing up what I understood was said. I thin... (more)

hisartist (Mar. 20, 2017 @ 8:37p) |

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Many mortgages are assumable by the surviving spouse, check and see if yours is.

If she is on the deed and can prove they are the successor in interest (better to document while both are alive) it shouldn't be an issue.

Your spouse will take over the name on the deed (assuming both are), the mortgage company will not care who pays as long as they get paid (And the names don't shift dramatically such as adding a name or changing the deed to completely different people).

If you want you can refinance in the surviving spouse name, however that will reset the rates and trigger income checks , etc

Edit : Oh dear either I didn't read that right or you updated, if the spouse on the NOTE dies, you will have issues especially during payoff.

One name on note in a non-recourse state lets you walk away without touching the others' credit.

Edited to add: mortgage in one name, deed in both is probably the structure you want.

Thank you all! This helps. We will check to see if it is assumable by spouse. We really don't want the surviving spouse to have to refinance or jump through hoops to keep the home if something should happen to the other.

Another question on our minds is: if there is no more rent payment, will the spouse who is NOT on the note start losing credit score if the only other source of credit is a credit card?

The only way rent matters for credit scoring is if missed payments find their way there.

Most lenders won't allow non borrower to be on the title as the non borrower now have a claim to the property without debt obligations.

From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?

hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

Do you have life insurance that might help in this event? In other words, if the spouse cannot refinance easily, paying down the principal might change that.

forbin4040 said:   
hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

† Could we just ensure that the note was assumable by the surviving spouse to avoid the need to refinance? Or would that also require a refinance?

RJG said:   Do you have life insurance that might help in this event? In other words, if the spouse cannot refinance easily, paying down the principal might change that.
† That would be a good idea, unfortunately we don't at this time. We'd prefer for the surviving spouse to not have to deal with a refinance anyway.

hisartist said:   
forbin4040 said:   
hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

† Could we just ensure that the note was assumable by the surviving spouse to avoid the need to refinance? Or would that also require a refinance?

† Would require a refinance. †And proof of income, etc
Loans aren't 'assumable' like that. †Either you let the loan run, or you refi it into a new loan. †Also don't forget that payments into a dead person's loan doesn't help your credit raiting at all.

forbin4040 said:   
hisartist said:   
forbin4040 said:   
hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

† Could we just ensure that the note was assumable by the surviving spouse to avoid the need to refinance? Or would that also require a refinance?

† Would require a refinance. †And proof of income, etc
Loans aren't 'assumable' like that. †Either you let the loan run, or you refi it into a new loan. †Also don't forget that payments into a dead person's loan doesn't help your credit raiting at all.

† True. If both are on the note, would that still require a refi if one died?

hisartist said:   
forbin4040 said:   

† Would require a refinance. †And proof of income, etc
Loans aren't 'assumable' like that. †Either you let the loan run, or you refi it into a new loan. †Also don't forget that payments into a dead person's loan doesn't help your credit raiting at all.

† True. If both are on the note, would that still require a refi if one died?

† If both on the note, then you are golden. †No refi needed (unless you wanted better rates)

forbin4040 said:   
hisartist said:   
† True. If both are on the note, would that still require a refi if one died?

† If both on the note, then you are golden. †No refi needed (unless you wanted better rates)

† Perfect, thanks for all the input. Seems like the only reason to leave someone off is to try to preserve their credit in case of foreclosure. Which if they are on the deed at time of foreclosure would not happen anyway.

ach1199 said:   Most lenders won't allow non borrower to be on the title as the non borrower now have a claim to the property without debt obligations.Some lenders (like Provident) don't allow non-borrowing spouse on the title. Most of the lenders (or brokers) I've dealt with do allow non-borrowing spouse on the title.

hisartist said:   Seems like the only reason to leave someone off is to try to preserve their credit in case of foreclosure. Which if they are on the deed at time of foreclosure would not happen anyway.That's not the only reason. Another reason is to hide assets, if, for example, the non-borrowing spouse is in a high liability profession, like a surgeon (actually in this case the spouse wouldn't be on the title). Another is if they don't make enough money so there's no reason for them to go through the process of qualifying. Yet another is to preserve their individual credit for other means.

Specifically for credit cards, two spouses can have higher total credit limits if both use joint income to apply / qualify for credit, but don't add each other as authorized users on each others cards.

I suspect the same may be true for mortgages or other loans -- two people may be able to borrow more money individually than jointly, because their individual credit reports aren't burdened by joint debt.

YMMV ... variables can include state, courts, lender. Mom and Dad had a mortgage (Deed of Trust) with Wells Fargo. Wells Fargo has a service that hunts for death notices. Dad died first. Wells Fargo kept sending notices of expectation the loan be paid off because of his death despite auto payments being successfully taken from the WF check account each month after he died (loan payment always current). Calling them stalled their actions. Filling out their forms and submitting stalled their actions.† Took a year before they accepted the concept that both spouses were covered by all documentation and all responsibilities were being honored and complied with.† I finally convinced her to pay Wells Fargo simply because of lack of benefit of paying interest since good estate planning kept her financially healthy.†

Separate issue - some banks with freeze a joint checking account when one spouse dies. There are ways to avoid that, but care needs to be taken when getting a checking account.
Separate issue. Each spouse should have some credit in their own name as account owner - not just authorized user.
In many states, Authorized User is not LEGALLY liable for account of deceased card holder. Credit Card companies will try to collect regardless.

Their deed on file at the county named each of them including language "WITH RIGHTS OF SURVIVOR" which in our state covers the title to the survivor. Courts in our area are flaky. IF both are still legally married, some judges would write court orders deeds were valid as is. Others would order new deeds. Our state has laws favoring a surviving spouse. Not true in all states. I do know if the title was only on Spouse who dies, that real estate had to go thru probate unless the property was in a family trust which I recommend.

REGARDLESS - properly drawn legal wills are strongly suggested. Spouse dying without a will places ALL property in the probate nightmare often referred to as intestate.
https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=intestate+definition&*&dobs=intestate

http://www.nolo.com/legal-encyclopedia/how-estate-settled-if-the...

http://estate.findlaw.com/planning-an-estate/understanding-intes...

JW10 said:   ...Spouse dying with out a will places ALL property in the probate nightmare often referred to as intestate...Are you saying that even property deeded to "husband and wife as community property with the right of survivorship" (in a community property state) will still go to probate if there's no will?

What about accounts that have POD or beneficiary designations? I'm pretty sure these will also avoid probate when there's no will.

Laws vary by state. My comments do NOT consider community property state status. My state is NOT a community property state.
In my state, it would be listed as a side note in the deceased estate probate to assure the judge it has been reviewed but for most cases "right of survivorship" can be on a deed without marital status and do the job. ie any two persons or more can have "right of survivorship" language on a deed.

Mortgages†generally cannot be processed in a probate process to protect a spouse.† Mortgages are part of the process when dealing with estate processes such as permission from judge to pay.†† My expectation if only deceased on mortgage, the mortgage company would expect to be paid in full subject to possible loan assumption language often on VA and FHA mortgages which depending on language may or may not be possible.

I am unsure of correct answer to last question.

forbin4040 said:   
hisartist said:   
forbin4040 said:   
hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

† Could we just ensure that the note was assumable by the surviving spouse to avoid the need to refinance? Or would that also require a refinance?

† Would require a refinance. †And proof of income, etc
Loans aren't 'assumable' like that. †Either you let the loan run, or you refi it into a new loan. †Also don't forget that payments into a dead person's loan doesn't help your credit raiting at all.

† Actually, some are....

hisartist said:   † Perfect, thanks for all the input. Seems like the only reason to leave someone off is to try to preserve their credit in case of foreclosure. Which if they are on the deed at time of foreclosure would not happen anyway.
The note has nothing to do with ownership. † The person on the note can default, and that's not automatically going to affect the person on the deed, other than them losing the secured property. †Forbin has given pretty good general advice, but the answer is that it all depends on the state and what it says on the mortgage documents.†

There is†some wrong information here. This does not vary by state as most of these mortgage terms are covered under federal law. Here's a topic I posted on this same topic several years ago:
https://www.fatwallet.com/forums/arcmessageview.php?catid=52&threadid=1193634

You don't†want the bank to invoke the due-on-sale clause. The section of applicable code is located at:
https://www.law.cornell.edu/uscode/text/12/1701j-3


Real estate lawyers are great in this case. Each state laws are different. Get one that is experienced and recommended.

joaustin said:   You basically want to the bank invoking the due-on-sale clause.I think you meant to say "you basically don't want the bank invoking the due-on-sale clause" and they could not do so due to the exemptions described in section (D) of the code you linked. Right?

forbin4040 said:   
hisartist said:   From my research they let you have only one spouse be on the note, but both have to be on the mortgage (saying the lender can foreclose if payments aren't made) if both are on the deed. Is that wrong?
† Depends on the state.
But nothing wrong with it at all.
Lots of cases where 1 spouse is on the note and both on the deed.
HOWEVER
If the spouse on the note dies, then the loan needs to be refinanced. † You could theoretically pay the note and let it run, however if the death certificate reaches the lender, then it can cause much problems on a single name on a note.

There is an exception for this specific issue. Under the†Garn-St. Germain Depository Institutions Act of 1982, no lender is permitted to exercise its due on sale clause upon "transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety." In other words, a transfer to a relative resulting from the death of the borrower does not trigger a due on sale clause. See 12 C.F.R. 591.5(b)(1)(v)(A) (implementing 12 U.S.C. 1701j-3(d)(f)).

Here's a link to the actual statute in question: https://www.law.cornell.edu/uscode/text/12/1701j-3†As noted there, clause (d), which contains the exceptions to the due-on-sale clauses, reads as follows:

(d)† Exemption of specified transfers or dispositions†
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause uponó
†(1) the creation of a lien or other encumbrance subordinate to the lenderís security instrument which does not relate to a transfer of rights of occupancy in the property;††(2) the creation of a purchase money security interest for household appliances;††(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;††(4) the granting of a leasehold interest of three years or less not containing an option to purchase;††(5) a transfer to a relative resulting from the death of a borrower;††(6) a transfer where the spouse or children of the borrower become an owner of the property;††(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;††(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or††(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

This brings up a question I didn't have because I just assumed our situation was normal. But now because of this post and the varying answers, I'm curious.

I bought my house and took out a mortgage before getting married. I live in a community property state. I don't have a will, but if I did, I would leave everything to my wife 100%. There is no other family that would fight her over my stuff. She's not on the deed. She's not on the mortgage.

Would she have to do anything overly complicated (such as refinance) to the house if I died?

meade18 said:   There is no other family that would fight her over my stuff.
Never bet on it.

You can remedy this in several ways - get a will, put the house in a trust, add her to the title/deed, etc.††

dcwilbur said:   
meade18 said:   There is no other family that would fight her over my stuff.
Never bet on it.

You can remedy this in several ways - get a will, put the house in a trust, add her to the title/deed, etc.††

††
I'd bet on it.†

Regardless, how much work is it to add her to the title/deed?

geo123 said:   

There is an exception for this specific issue. Under the†Garn-St. Germain Depository Institutions Act of 1982, no lender is permitted to exercise its due on sale clause upon "transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety." In other words, a transfer to a relative resulting from the death of the borrower does not trigger a due on sale clause. See 12 C.F.R. 591.5(b)(1)(v)(A) (implementing 12 U.S.C. 1701j-3(d)(f)).

The above †is exactly why they don't like issuing 1 person on the note and 2 on the deed.
Now the second part interests me, if the person on the note dies, they cannot foreclose or force the new owner to refinance?

meade18 said:   
dcwilbur said:   
meade18 said:   There is no other family that would fight her over my stuff.
Never bet on it.

You can remedy this in several ways - get a will, put the house in a trust, add her to the title/deed, etc.††

††
I'd bet on it.†

Regardless, how much work is it to add her to the title/deed?

††Not much.

And get a will.

forbin4040 said:   The above †is exactly why they don't like issuing 1 person on the note and 2 on the deed.
I have done this countless times and have never had an issue. It is quite common for there to be just one borrower on the loan but for both spouses to own the house, in which case the two spouses simply sign the mortgage/deed of trust/security deed that allows the lender the foreclose on the house if there is an event of default under the loan.
Now the second part interests me, if the person on the note dies, they cannot foreclose or force the new owner to refinance?
I don't understand the question. In the above scenario, if the husband is the only borrower under the loan and the house is jointly owned by him and his wife, upon the husband's death the wife becomes the sole owner of the house. The lender is not permitted to use the due on sale clause against her.
††

geo123 said:   
Now the second part interests me, if the person on the note dies, they cannot foreclose or force the new owner to refinance?
I don't understand the question. In the above scenario, if the husband is the only borrower under the loan and the house is jointly owned by him and his wife, upon the husband's death the wife becomes the sole owner of the house. The lender is not permitted to use the due on sale clause against her.
††

But the lender still has a claim on the house and still has a right to be paid, right? †So the survivor isn't an obligor on the note, per se, but if the note isn't paid, the lender CAN foreclose to recover the debt, right? †In other words, the surviving owner doesn't legally assume the debt, but they better keep paying. †

dcwilbur said:   
geo123 said:   
Now the second part interests me, if the person on the note dies, they cannot foreclose or force the new owner to refinance?
I don't understand the question. In the above scenario, if the husband is the only borrower under the loan and the house is jointly owned by him and his wife, upon the husband's death the wife becomes the sole owner of the house. The lender is not permitted to use the due on sale clause against her.
††

But the lender still has a claim on the house and still has a right to be paid, right? †So the survivor isn't an obligor on the note, per se, but if the note isn't paid, the lender CAN foreclose to recover the debt, right? †In other words, the surviving owner doesn't legally assume the debt, but they better keep paying. †

† Absolutely. The lender is just not permitted to use the due on sale clause in this particular instance, but retains all the other rights and remedies.

CFPB is coming out with more rules on this but here is a high-level summary. https://www.ginniemae.gov/issuers/issuer_training/Summit%20Docum...

geo123 said:   
dcwilbur said:   
geo123 said:   
Now the second part interests me, if the person on the note dies, they cannot foreclose or force the new owner to refinance?
I don't understand the question. In the above scenario, if the husband is the only borrower under the loan and the house is jointly owned by him and his wife, upon the husband's death the wife becomes the sole owner of the house. The lender is not permitted to use the due on sale clause against her.
††

But the lender still has a claim on the house and still has a right to be paid, right? †So the survivor isn't an obligor on the note, per se, but if the note isn't paid, the lender CAN foreclose to recover the debt, right? †In other words, the surviving owner doesn't legally assume the debt, but they better keep paying. †

† Absolutely. The lender is just not permitted to use the due on sale clause in this particular instance, but retains all the other rights and remedies.

† Does retaining all other rights and remedies include requiring the surviving spouse to refinance, regardless of whether they just keep making payments? In other words, is there any action the surviving spouse NOT on the NOTE (but on the mortgage/deed) would need to take, other than continuing to make the payments?†

Also, would the mortgage lender allow the surviving spouse who is not on the note to sell the home as long as it covered the remaining mortgage amount, or would they just require a refinance or foreclose the home.†

what happens if †the surviving spouse who is not on the note can't keep paying, would they let them sell the home to pay the rest off, or just foreclose if they couldn't qualify for a refinance?

that's part of that 'lots of fun' issues the surviving spouse has to go through.
It might be 'easy' to do, but just imagine the surprise the surviving spouse at the extra paperwork needed.

Don't forget that the surviving spouse's credit history will not benefit from this at all. The dead guy will.

Skipping 11 Messages...
forbin4040 said:   
hisartist said:   

geo123 said:   
hisartist said:   I thought the due on sale clause just meant they couldn't immediately make you pay the amount in full if your spouse died, not that they can't take it if you don't qualify for a refinance.
I am sorry, I do not understand your last post at all. Here is what a due on sale clause is:†https://en.wikipedia.org/wiki/Due-on-sale_clause

Once again, in the situation above a lender would not be able to force the deceased borrower's estate to immediately repay the loan, which means that the surviving spouse would get to continue to make payments under the loan as if the deceased borrower was still alive. To say it in a different way, in the situation above the borrower's death would not affect the status or the terms of the loan in any way.
††


† Thanks for the input, geo123. Sorry for getting confusing, I don't know all the right terms to use. It sounds like you are saying it doesn't matter who is on the note, because of the exemption from the Due on Sale clause. The surviving spouse can continue to make payments, and as long as they do, they will be allowed to continue to do so without refinancing. (but if they want the credit score benefit they should refinance). They could also sell the home and pay it in full. The lender cannot foreclose as long as payments are being made, even if they aren't being made by the person on the note.

† That is what he said.
Where is the misunderstanding?

There is no misunderstanding anymore as far as I'm concerned. I was merely summing up what I understood was said. I think I put my question in a confusing way, but it got answered anyway.



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