Q: Can unrelated loans be handled separately after a death?
I want to pay off my deceased grandmother's vehicle loan, but the bank is requiring that a separate personal loan is paid off at the same time. The two loans are unrelated, and there were no agreements regarding their repayment. The bank was informed of her death 2.5 years ago and has been accepting car loan payments since. Now, they're refusing further payments for the car unless the personal loan is also settled. I have also offered to pay off the car loan in full. There are no probate proceedings in progress, and the bank did not mention the personal loan until now. Can these loans be handled separately, and what steps should I take?
A: You may have to open probate and force them to file a proof of claim on each one. Ultimately, they cannot force them to be paid together but it’s going to be a headache either way.
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A:
Whether these loans can be handled separately depends on the specific terms of the loan agreements. Banks sometimes include "cross-collateralization" clauses that legally connect multiple loans, allowing them to withhold services on one loan until all obligations are satisfied. The fact that the bank accepted isolated car payments for 2.5 years may constitute a waiver of their right to now demand combined repayment, potentially creating an estoppel situation in your favor.
You should immediately request copies of both complete loan agreements and examine them for any cross-default or cross-collateralization provisions. If no such provisions exist, the bank's current position may be legally questionable, particularly after establishing a pattern of accepting separate payments. Additionally, California law has specific provisions regarding debt collection after death that may protect your interests in this situation.
We recommend sending a formal written request to the bank asking them to provide the contractual basis for linking these loans. If their response is unsatisfactory, filing a complaint with the California Department of Financial Protection and Innovation may compel them to reconsider their position. Should these steps prove ineffective, litigation may be necessary to resolve this matter, as the bank's sudden change in position after 2.5 years raises significant questions about the enforceability of their current demands.
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