Q: I am the mortgage lender on a commercial property and the buyer died. How do I get the balance due on the loan?
The heir apparent is the present owner of the property and is willing to continue making payments on the existing loan. How do I obtain an agreement to this effect.
A: I’d have to research the specifics, but, generally, the heir can continue to pay the current loan with no further documentation, and the mortgagee remains secured by the property. You could probably prepare an endorsement of the note or enter a new loan on the same terms.
The federal Garn-St. Germain Act signed by President Reagan in 1982 addresses this issue, and not in your favor. You would do well to read over the act, in particular, subsection (d), which exempts and overrides all due on sale or transfer clauses in residential mortgages and real estate loans upon the transfer of ownership to a relative upon death of the borrower. You cannot accelerate the mortgage balance, nor can you compel the heir to sign a new promissory note or mortgage making them personally liable on the loan. Your lien and security interest in the real estate remains, however, so in the event of non-payment you still have the right to foreclose your security interest in the property and sell it at auction, but you cannot sue the heir on the debt itself. However, so long as the heir makes the mortgage payments, you may not take any adverse action to enforce collection of your mortgage balance. This does not stop you from offering the heir the opportunity to sign new loan documents, but the heir is under no obligation to do so.
Here is a link to the statute, which preempts all contrary state law and private contract language to the contrary:
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