The Consumer Financial Protection Bureau (CFPB) recently clarified a rule that has been perplexing for heirs of mortgaged homes. A new interpretive rule stipulates that when a borrower dies, the name of the borrower’s heirs may be added to the mortgage without triggering the CFPB’s Ability-to-Repay rule. The new action is important because it allows heirs and surviving family members to acquire the title to a property, assume the mortgage, or apply for a loan workout.
The Ability-to-Repay rule, which was enacted in January, was intended to protect consumers from irresponsible mortgage lending by requiring lenders to verify that borrowers are financially able to repay their loans.
Jayme Nabors, co-founder of NBI Properties in Fort Walton Beach, said the new rule is significant because it affords heirs the opportunity to work with a lender to pay off the mortgage.
“Specifically, surviving family members can work directly with lenders to pay off loans or seek loan modifications,” he said. “The rule can also apply to other family-related transfers such as those occurring due to living trusts or divorce.”
The CFPB requires mortgage servicers to have procedures in place to promptly identify and communicate with heirs and surviving family members.