What Happens When Your Co-Signer Dies?

So, you tried to take out a mortgage on your new home, but you didn't have good enough credit to be approved and you had to have someone else co-sign on the mortgage for you. Well, what happens if your co-signer dies? The reason this is a concern for many people is because oftentimes, co-signers are older relatives who have lived long enough to establish good credit, so it's not totally unreasonable to worry about them passing away over the duration of your 15-, 20- or 30-year mortgage.

There are several things you need to consider when trying to establish the consequence(s) of your co-signer dying.

If Your Mortgage is in Good Standing

If you've always paid your mortgage payments on time and you've never missed a payment, then your mortgage is in good standing. This just means that you're of no concern to your lender. You're viewed as a good, reliable customer in their eyes. So, if your co-signer dies, the only thing you have to do is continue to make your payments in full and on time. You don't even have to notify your lender of your co-signer's death. Nothing will change.

If You've Defaulted

If you have failed to make a payment on time or in full, you've defaulted on your mortgage. This is where things get a little tricky. Your co-signer assumed responsibility for your late or missed payments, and even though they have passed away, they are still responsible. When the lender attempts to collect the late or missed payment(s), they will attempt to take it out of your co-signer's estate. In some states, they will attempt to collect from your co-signer's spouse, if applicable. In the event that the lender cannot collect through either of these avenues, you will have to pay.

Other Considerations

It's always a good idea to consult an attorney if your co-signer dies. Even if your mortgage is in good standing, it won't hurt to talk to a legal expert. It's also important to remember that you always have the option to pay off the mortgage in full, no matter the circumstances. So, again, even if your mortgage is in good standing, it might behoove you to just pay it off if you only have a few payments left. Lastly, in some states you might have the option to let your co-signer's estate pay off the remainder of your mortgage, but you still need to make payments in full and on time until the estate is settled or you will default.

Sources:

http://www.mortgageloanplace.com/lending-guide/home-mortgages/co-signing-explained

http://www.nytimes.com/2009/03/04/business/04dead.html?_r=1

http://www.bankrate.com/brm/news/advice/20020927a.asp