Handling a joint loan and deceased borrower

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Question:

Are there best practices for handling loans with two borrowers and then one passes awayY What is the best way to handle consumer and mortgage loans when this happens? Should the bank require the survivor to refinance or allow them to make regular payments? And what about HELOCS? Would it be best to remove the limit and allow payments on the balance, leave limit and allow terms of HELOC to continue or require them to requalify/refinance? Then, what about IRS reporting if the decease person's SSN is on the 1098?

Answer:

How you handle this is going to be based on your loan contracts. Is the death of one of the borrowers a condition of default? You need to visit with your legal counsel on that. If there is no default at this time, there is nothing that you can do. If the loan is in default, then your successor in interest rules will apply for mortgage loans. For other consumer loans, it would just require the bank to assist the borrower through a normal workout process. As a courtesy, if requested, most banks remove the deceased's name from any mailing labels and a request for the TIN of a surviving borrower is also made, if necessary. You do not automatically release the deceased from liability on the loan, as that person's estate would be then responsible for payment on their behalf.