1. Introduction
2. The Basics
   1. 1 Minute Recap
   2. Calculator
   3. Misconceptions
   4. Reasons to Do
   5. Qualifying
   6. Payoffs
   7. Using the Money
   8. Interest Rates
   9. How Much
   10. Safeguards
   11. Items Needed
   12. After Applying
   13. After Final Docs
   14. Purchase Home
   15. Testimonials
   16. Financial Qualify
3. The Detail
   1. Properties
   2. Spouse Off Title?
   3. Holding Title
   4. Insurance
   5. Property Taxes
   6. Medicaid
   7. Subordination
   8. POA
   9. No Foreclosure
   10. Foreclosure
   11. Foreclosure2
   12. Loan Comes Due
4. Considerations
   1. Alternatives
   2. Use Savings?
   3. Now or Later?
   4. 2010 Update
   5. 2009 Update
   6. Social Security?
   7. Video
   8. Decision Maker
5. Jest for Fun
   1. Old 45's
   2. Why You Need RM
   3. Do For Fun
   4. Letter to Bank
   5. Perks Over 50
   6. Trip to Costco
   7. Your House
   8. 1950s Nostalgia
6. Product/Services
   1. Origination
7. Contact
   1. Contact
   2. About Us
   3. Contact Form
   4. Privacy Policy

   NMLS ID 210661

This site The Web

(leftbottom)

Foreclosure When the Loan Comes Due

Remember, the loan comes due when the borrower(s) sell, move or pass away (or a couple other cases such as not paying homeowners insurance or taxes (see Chances of Foreclosure). 

If the borrower is selling, foreclosure is not happening.  They may be a short sale and that is handled the same as with a regular mortgage.

If the borrower moves typically they would be selling the home.  If they do not do so, then they could be foreclosed on. 

If the last borrower passes away, the loan becomes due.  Typically the executor/successor trustee/heirs will sell the home, the loan will be paid by escrow from the proceeds and the balance after expenses will be given to the estate to settle with the heirs.  If the home cannot be sold for more than the loan value, foreclosure may be the remedy.  Usually it is voluntary foreclosure.

Typically, the situation should work like this:

The Executor/Executrix/Successor Trustee will determine if any heirs wish to keep the property.  If so, they need to pay off the loan balance.

Assuming no heirs wish to keep the home, the Executor (I'll skip all the other titles from here) would check with a Real Estate agent to get an estimate of what the home would sell for. 

If the estimated home value is more than the loan balance, the Executor would likely choose to put the house on the market.  After it sells, the lender and any other lien holders are paid off, fees to vendors assisting in the sale are paid and a check would then be sent to the Executor for the balance.

If the estimated home value is less than the loan balance, the Executor would choose not to go through the effort of selling the home knowing they would receive nothing.  In that case, they should notify the lender they have determined the home value is not sufficient to pay off the loan and they wish to turn over title to the lender.  Usually, the lender would need an appraisal to verify.  Then, typically, they will ask the Executor to execute a Deed in Lieu to transfer title.  There may be a ton of red tape but that should be it from the Executors point of view.

If the Executor thought there was enough value to attempt selling then it is likely the lender would require the Executor to maintain the home in saleable condition since the property has not transferred to the lender and the estate is still responsible for the home.

I imagine it is possible for a lender to 'bully' an Executor who is trying to return the home to the lender into trying to sell it themselves.  I haven't come across this but I guess not all lenders are nice.