Estate Planning Needed to Prepare for When a Co-Borrower on Title Dies

Whether you own your home with a spouse, significant other, family member, a friend or by yourself, you need to arrange for financial cushion to replace the loss of income when a co-borrower on the loan passes away.

What happens to the mortgage if a borrower on real estate title dies?  Do you have to get a new loan? Does the lender call the loan through a due-on-sale clause?

Law at the 1982 Garn-St. Germain Act has nine exemptions preventing a lender from calling a mortgage due on properties with four units or less.

You can take over the existing loan if you meet one of the exemptions.  Once you do take over the loan you should figure out if it’s a good loan that is a “keeper” or if you can refinance under a better rate and terms.

What about property taxes?  Does the property get reassessed for a higher property tax basis?  California law has the following rules:

1. The property will not be reassessed if it passes to the surviving spouse pursuant to a will or trust, whether the spouse is a joint tenant or has community property rights of survivorship.

2. Your property taxes on your primary residence, plus $1 million of assessed value of other properties, will pass to your children without reassessment.

3. Property passing to anyone other than a spouse or child, through joint tenancy, a will or a trust, will trigger a property tax reassessment.

4. Tenants-in-common interest will get reassessed unless it passes to the spouse or a child (provided the portion passing to the child does not exceed the $1 million assessed value limitation).

And how will your heirs be able to avoid probate court, fees and income taxes on the estate?

People who own property with another person should work with an experienced estate planning attorney or income tax professional to devise an estate plan and review and update that on an annual basis.

By Harrison K. Long – Realtor and professional real estate representative, broker associate, Evergreen Realty HomeSmart at Orange County CA – 949-854-7747 (direct) or 949-701-2515 (cell or text) – CAL BRE 01410855.  Also an attorney member of the CA State Bar Association #69137.  This is for information only and is not the providing of legal services.  

About Harrison K. Long

Real estate and business attorney. CA State Bar Association attorney member #69137. Professional real estate representative, REALTOR®, GRI, Real estate broker, CALBRE #01410855. Broker associate, HomeSmart Evergreen Realty, Irvine, CA. Providing real estate legal information and services for property owners, estate trustees, executors and administrators, fiduciaries, bankers, investor group managers, with their best decisions about homes and real estate. Orange County REALTORs® (member and prior service on its board of directors). "Realtor of the Year 2016" award by the Orange County REALTORs®. California Association of REALTORs® (now serving on its board of directors). National Association of REALTORs® member. Contact by cell or or text at 949-701-2515.
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