The question I am really asking is how a lender is protected when a borrower dies during the loan period

Asked by Lily, Pensacola, FL Fri Mar 4, 2011

Since I don't have kids, I haven't needed a lot of life insurance. Would a lender require me to buy a policy to cover the mortgage balance? Of course, anyone can die prematurely and, for all I know, the purchase of insurance to cover the balance might be written into every mortgage, including the one I have now. I think the good thing I am taking away from this is that age is not a barrier to getting a new mortgage.

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Gerard Dunn, Agent, Chevy Chase, MD
Fri Mar 4, 2011

The property acts as collateral for the loan you take on the property. When the lender underwrites the loan - they weigh your ability to pay back the loan - and the value of the property itself. They want to be sure there is enough equity in the property so if they need to foreclose and sell the property - they will get their investment back.

If the lender does have to sell the property - and there is money left once the property is sold - it will be remanded to your estate.

Good Luck!

Gerry Dunn
Associate Broker
Serving Maryland, D.C and Northern Virginia
1 vote
Paula Bean, , Orlando, FL
Fri Mar 4, 2011
Thee is no one right answer, as it depends on too many variables.
Is there a spouse? is spouse on loan?
Is thee pmi?
a will?
Life insurance?
Although none of us are attorneys, you should seek one out due to your specific situation.
If you are a spouse, wife dies, and you want to stay in house, likely the bank will not let you do that and will sell the house to pay off the mortgage.

There are many variables though. You could refi, get a relative to buy the house and do a life estate, many options which is why you need to consult with a real estate attorney asap to see what your options are.
Good luck
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Glenn Lubel, , Pensacola, FL
Fri Mar 4, 2011
Lily: When the borrower dies during the loan period, you have to look to the terms of the mortgage. Most mortgages state that death is an event of default no different than non-payment or any other even of default. The bank then has the same options they would have otherwise had, just now dealing with the estate of the borrower. The bank could try to negotiate with the estate for payback or foreclose on the property according to the terms of the mortgage. Another issue arrises as to the liability of the borrowers estate should the proceeds from a foreclosure sale not net enough to satisfy the outstanding balance of the loan. I would suggest consulting an estate attorney if you have any questions as dealing with mortgaged properties in an estate can become complicated depending on the personalities involved.

As to your second question, I have seen a commercial investor be required to purchase life insurance before with regard to a large speculative portfolio with the bank, but I've never seen that requirement before on a residential transaction. Good luck with things, Glenn
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Donna Galleg…, Agent, Pensacola, FL
Fri Mar 4, 2011
I would suggest you may want to call Siegrid McAskill with Regions bank, Siegrid will know the correct answer

Her office number is 850-444-1162
Cell # is 850-723-9863
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Sally Grenier, Agent, Boulder, CO
Fri Mar 4, 2011
Hi Lily,
I've never heard of a lender requiring a buyer to have life insurance. But once you do buy a home, I have seen offers from lenders who want to sell you a policy where if you die, your mortgage will be paid off. If that's a concern for you, then maybe you want to look into it. (I'd shop around and not necessarily go with the lender).

P.S. How's the gulf doing? My hubby and I have fond memories of the sugar white sand beaches. Hope you haven't been impacted too much by the oil spill.
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