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Thursday, February 10, 2022

If a house has a mortgage on the death of the owner, does the bank allow a year to repay the mortgage?

A reader has asked a question about dealing with a mortgage on an estate property. Here is the question and my comments:

"Just curious if a house has a mortgage upon death of the owner, does a typical bank like TD or BMO allow the estate trustee the typical year to settle things and pay back the loan. Obviously, taking into account the monthly mortgage payments are continued to be paid."

In my experience, if the mortgage payments continue to be made, the banks are patient. After all, they aren't losing anything. They also know that Grants of Probate are not issued overnight and it takes a bit of time to organize and obtain the paperwork needed to deal with the house. 

If the mortgage payments are automatically deducted from the deceased's bank account, which is typical, then upon the bank account running dry, the situation changes. If nobody is making any payments, the bank is going to move to foreclose and it won't make any difference whether they are foreclosing against an individual or an estate. 

I don't think there is any magic to the one-year mark in this scenario. It would seem to me that if the house is going to be sold, it will probably be sold within a year. If nothing has happened within that time, it is likely that the beneficiaries of the estate are the ones who are going to question why it is taking so long to sell a property.

Keep the lines of communication open with the bank. Discuss your plans with them. I recommend this because I have seen dozens and dozens of cases in which the bank has emptied out an account in one lump sum to pay off bank debts, whether those debts are mortgages, lines of credit, or even credit cards. If the executor doesn't know the bank is going to take that step, it can come as a shock to realize there is no longer any money to pay for funeral, taxes, or expenses. And from the bank's perspective, if nobody is coming up with any money, it seems like their only recourse is to use resources already in their custody.

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