The Importance of Understanding Contracts of the Dead in Real Estate and Banking

Professionals in the real estate and banking sectors have a duty to ensure that clients are fully informed about contracts of the dead and the impact they can have on their financial affairs.

Unfortunately, several misconceptions have at times been perpetuated causing confusion or even legal challenges if not addressed properly. One of the most common misconceptions about contracts of the dead is that the borrower’s outstanding mortgage debt will simply disappear upon their death. However, the reality is that the mortgage debt does not automatically disappear, but it will be treated differently depending on the terms of the charge document and the laws governing the mortgaged property. The outstanding debt becomes the responsibility of the deceased borrower’s estate and will need to be settled before the property can be distributed to any beneficiaries.

Another common misconception is that borrowers can simply write a Will to ensure that their mortgage debt is settled properly after their death. While having a Will is an important part of estate planning, it is not a guarantee that the borrower’s wishes will be carried out, especially if the Will is contested or if there are other creditors involved. In fact, in some cases, the terms of the charge document may take precedence over the provisions in the Will, and the lender may be entitled to foreclose on the property to collect the outstanding debt.

To address these misconceptions and ensure that clients are fully informed, we have taken proactive steps to address mortgage obligations post-mortem in our CM Property Digest February Issue, which you can access here. This involves reviewing the terms of the charge document, working with the personal representative of the deceased’s estate, and any existing lender, and consulting with legal and financial experts to develop a comprehensive plan for settling the outstanding debt.

In conclusion, contracts of the dead have a significant impact on the parties involved, in this case, in real estate and banking transactions given that the obligations of the deceased are not extinguished upon death. By taking proactive steps to address mortgage obligations post-mortem, families can minimize stress during a difficult time. Personal representatives, beneficiaries, and lenders should seek legal guidance to ensure that they are fulfilling their obligations and protecting their respective interests.

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