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Does Your Estate Planning Consider Your Mortgage?

For some families in Massachusetts, the passing of a loved one brings more than emotional loss. In some cases, a death can result in the loss of property that has been in the family for years — or even a loss of home and shelter.

When considering estate planning, it’s important to understand how a current mortgage may impact heirs in the future. The Consumer Financial Protection Bureau recently issued what’s called an interpretive ruling that helps individuals in that regard.

The CFPB’s action involves a rule that went into place in January. The Ability-to-Repay rule requires banks to verify that an individual has the ability to repay a loan prior to granting a mortgage or adding that person to a mortgage. The strict requirements made it impossible for some heirs to obtain approval to take over mortgages once a loved one passed away.

The Ability-to-Repay rule put families in danger of losing properties. In some cases, individuals who were already living in the homes in question would be forced out. The CFPB’s clarification of the rule provides some relief for individuals in an estate situation.

The CFPB’s new ruling doesn’t guarantee that heirs will be able to obtain mortgages for homes where debt is still outstanding. However, it does remove the strict guidelines and makes it more possible for banks and lenders to work with heirs to create a viable repayment plan.

The director of the CFPB said that the Ability-to-Repay rule was never meant to prevent heirs from keeping family homes. The new interpretation, he says, lets heirs works with banks without jumping through hoops that are unnecessary for the situation.

Massachusetts residents who want to leave mortgaged homes or other properties to their heirs should work with an experienced estate planning attorney. These professionals can help ensure that beneficiaries will be able to remain in or gain possession of the property they are bequeathed.

Source: Reverse Mortgage Daily, “CFPB Issues Rule For Heirs of Mortgage Holders” Emily Study, Jul. 09, 2014

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