What Happens to My House if the Co-signer Dies?
When you try to purchase a mortgage but you do not make enough income or have good enough credit to be approved for the mortgage, you can have a third party co-sign on your mortgage. In this event, you are still the primary borrower and are expected to make payments; however, if you fail to make payments, your co-signer is held responsible. In most cases, even if your co-signer dies, they are still responsible for paying off the mortgage if you cannot.
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Mortgage in Good Standing
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If your mortgage is in good standing -- you always pay on time and haven't missed any payments -- at the time your co-signer dies, nothing will change. You just have to keep paying your mortgage on time and in full every month like you have been.
Mortgage in Default
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If you have defaulted on your mortgage -- you have failed to make payments on time or altogether -- your co-signer is still responsible for the payments. Since your co-signer is no longer living, the payments will have to come out of his estate. In some states, the co-signer's spouse may be responsible for making the payments. In the event that your co-signer died without leaving behind any assets and has no spouse, the lender will seek payments from you, the primary borrower.
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Paying Off the Balance
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After your co-signer dies, his estate will need to be settled. At this time, all of his debts and assets are considered. Depending on the terms of the mortgage and the state your house resides in, the assets of the co-signer's estate can be used to pay off the balance on the mortgage. The lender also will have a time limit to claim on the estate. If your co-signer's estate is going to pay off the balance of the mortgage, you must still make payments on time and in full until the estate is settled. You also have the option as the primary borrower to pay off the remainder of the mortgage in full, at which time you would become the owner of the house and your co-signer would be released.
Considerations
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In the event that your co-signer dies, the first thing you should do is speak with an attorney who can help you review the terms of your mortgage and advise you on the best course of action.
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