The Consumer Financial Protection Bureau has announced an interpretive rule to assist heirs who, due to the death of a mortgagor, acquire title to a property and take over the mortgage. Specifically, the interpretative rule clarifies that heirs may be added to a mortgage without prompting the Ability-to-Repay rule, which took effect in January 2014.
Under Regulation Z § 1026.43, the Ability-to-Repay rule applies to any “consumer credit transaction that is secured by a dwelling … including any real property attached to a dwelling,” and requires lenders to perform certain due diligence to ensure, in good faith, a borrower’s creditworthiness and whether they are qualified to make payments towards a sought-after mortgage. Absent the triggering of the Ability-to-Repay rule, lenders will not be required to perform the same type of due diligence with respect to the heirs. Instead, heirs may replace the deceased mortgagor without a determination of creditworthiness.
There are many benefits to this rule change, including the heirs’ ability to obtain information related to the mortgage. Going forward it should be easier for heirs to refinance, pay off mortgages, seek loan modifications, and prevent the potential foreclosure of family homes.
CFPB Director Richard Cordray stated, “[l]osing a loved one should not mean also losing your home. Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops. This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”