CFPB Issues New Rule to Prevent Heirs from Foreclosure


Photo credit: Ellé Joteva

Ability to Repay Rule Won’t Apply Here

Inheriting a property when a loved one passes can be complicated enough, but getting added to the mortgage can be a harrowing experience. The main benefits of being added to the mortgage are access to account information, paying off the loan and seeking a loan modification.

On July 8th, the Consumer Financial Protection Bureau (CFPB) issued a guidance to make it easier for family members who have inherited a property to be added to the mortgage. This rule will make it easier for them to refinance, seek a loan modification and avoid foreclosure.

The CFPB ruled specifically that the heir may be added to the mortgage without coming under the Ability to Repay (ATR) Rule. This rule took effect in January 2014 and requires lenders to make a good faith effort to make sure that the borrower has the ability to make payments on the loan they are applying for.

“Losing a loved one should not mean also losing your home. Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,” said CFPB Director Richard Cordray. “This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”

The CFPB guidance allows the lender to recognize the heir as the borrower without having to consider their credit worthiness. This legitimizes the heir, giving them the same rights as the deceased previous mortgagor. This increases the likelihood that the mortgage holder will grant a modification, thus preventing unnecessary foreclosures.

Alys Cohen, staff attorney at the National Consumer Law Center’s Washington, D.C. office said, “The CFPB’s announcement is a crucial step toward assisting widows, other heirs, and divorced spouses seeking to keep their family home after a tragic loss or change in family situation.  The rule clarifies that the requirements for new loans do not apply to these homeowners, and that these homeowners also have the right to receive routine notices about the loan. We hope the CFPB will go further and build on its October 2013 guidance to make clear that mortgage companies should accept loan modification requests from successors’-in-interest before requiring that person to assume the debt.”

National Mortgage Professional Magazine. “CFPB Offers Clarification on Heirs Losing Homes”  9 July 2014.

DS News. “CFPB Issues Ruling to keep Heirs from Falling into Foreclosure”  9 July 2014.


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