Inheritance Update: CFPB Clarifies Mortgage Rules

If property is passed down to you, here's how you can avoid problems

This week, the Consumer Financial Protection Bureau clarified its rule on family members who inherit property titles upon the death of the home owner.

The CFPB says the name of the survivor who assumes the mortgage generally may be added without triggering the Ability-to-Repay rule. Consequently, this will help heirs take over the mortgage and be considered for a loan workout (if one is needed) so they can avoid foreclosure.

The Ability-to-Repay rule shields consumers from careless mortgage lending by requiring lenders to make a reasonable determination that prospective borrowers will have the financial means to pay off their loans.

Creditors are no longer required to determine an heir’s ability to repay the mortgage before recognizing the heir as the borrower. Therefore, as the documented borrower, there will be easier for an heir to acquire account information, pay off the loan, or request a loan modification.

The interpretive rule can also apply to other family-related transfers, such as transfers to living trusts and transfers resulting from divorce or legal separation.

“Losing 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,” says CFPB Director Richard Cordray in a statement.

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