The CFPB issued an interpretive rule on Tuesday to clarify inheritance rules for mortgages in the event of a family member’s death.
Under the rule proposed by the CFPB, the name of the borrower’s heir may generally be added to the mortgage without triggering the agency’s ability-to-repay requirements—a move intended to help surviving family members who acquire property to assume the mortgage and be considered for loan reconciliation.
“Losing a loved one should not mean also losing your home,” CFPB Director Richard Cordray said. “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.”
Last year, the CFPB finalized several mortgage rules, including the ability-to-repay rule, which requires lenders to make a good-faith determination that a prospective borrower can repay the loan.
After property is legally transferred to an heir, a property may still have an outstanding loan, meaning significant consequences for heirs unable to add their names to the mortgage. As the named borrower, the heir may obtain account information, pay off the loan or seek a loan modification.
The rule may also apply to other transfers, including living trusts, transfers during life from parents to children and transfers related to divorce or separation.