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New rule may save heirs from facing foreclosure of family home

When the loved one of a Michigan family dies, the anxiety of the family could be escalated by the complicated process of passing the property to its heirs. Family members who have had no prior business dealings with the mortgage provider may experience difficulties with the transfer of the property. As a result, surviving family members often lose their homes or face foreclosure.

Guidance that was recently issued by The Consumer Financial Protection Bureau (CFPB) aims to assist the members of a family who have been named as heirs of a home from a deceased loved one. The CFPB indicated that the names of beneficiaries may be included in the mortgage agreement, affording them the opportunity to obtain a modification or refinance of the property, and thereby avoid foreclosure. Family members will now have the opportunity to negotiate payment modifications with the mortgage holder.

Furthermore, the CFPB ruled that the addition of the heir’s name should not prompt activation of the Ability to Pay rule that was announced at the beginning of this year. Under this rule, prior to authorizing a loan, lenders are required to ensure the ability of a borrower to afford the payments. This rule will no longer be applied to cases where the heir takes over the mortgage of an inherited property. This change provides legitimacy to the family members and may ease negotiations with the provider of the mortgage.

Michigan families that have inherited their family homes after the death of a loved one and are being threatened with foreclosure may want to keep the above information in mind, and with the help of legal representation, they may be able to negotiate a modification with the lender and prevent foreclosure. Although the new CFPB directive does not compel the mortgage holder to include the beneficiary in the existing mortgage, it allows negotiations and avoidance of defaulting on the loan. Individuals who have failed to prevent foreclosure may want to obtain information about the protection of personal bankruptcy. If the homeowner has a regular income, he or she may be allowed to present a reorganized payment plan under Chapter 13 regulations to the court. If approved, reduced installments over several years may enable the individual to continue mortgage payments while preventing foreclosure.

Source: dsnews.com, "CFPB Issues Ruling to keep Heirs from Falling into Foreclosure", Derek Templeton, July 8, 2014

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