Surviving the Borrower: Assumption, Modification, and Access to Mortgage Information after a Death or Divorce

Abstract

The death of a borrower too often brings the surviving spouse or other heirs to the brink of foreclosure. Transfer of the marital home to a non-borrower spouse through divorce may lead to the same problems. Mortgage servicers tell these successor homeowners that because they are not the borrower on the loan, they are not entitled to any information about the mortgage secured by their home and cannot apply for a loan modification, even if they are struggling with the payments. In fact, successors have a right to information, the right to assume liability for the loan, and the right to apply for a modification. In the midst of the foreclosure crisis, many academics have examined state-specific laws, mortgage securitization, and the financial incentives that impede efforts to mitigate foreclosures. No scholarly paper has explored the legal issues affecting successor homeowners who seek information and payment relief after a transfer of the family home. In this article, we provide a comprehensive discussion of the federal privacy regulations, statutory limits on enforcement of due-on-sale clauses (specifically the exceptions contained in the Garn-St Germain Act), state contract law, and federal loan modification programs that determine the rights of this vulnerable population. In a time of increased focus on regulation of mortgage lenders and servicers, we also recommend policy changes that would clarify existing rights and better prevent avoidable foreclosures.