Can You Keep Your Home if the Mortgage Co-signer Passes Away?

This is probably, and hopefully, a rare situation but it does raise a question about potential implications of having a co-signer on the mortgage: 

Q: My grandfather passed away and he was my mortgage co-signer. My loan is current. I have made all payments. My grandfather has assets, estate. A good amount. Will my home be included in any of that or be paid from any of that? If they went after his assets and the home was paid, would it still be my home?

— Blake, Mission, B.C.

Robert McLister an independent mortgage planner at intelliMortgage and founder of answers:

First off, depending on the lender, you may or may not be able to simply continue making payments as usual. Lenders typically require you to notify them if a co-applicant dies. Some lenders will allow you to keep paying the mortgage yourself. Others will re-qualify you to see if you can afford the payments on your own. If you can’t, the mortgage will have to be paid out or you’ll need to get another co-signor.

Further to your question, if a home is owned in “joint tenancy,” the deceased party’s interest simply passes to the other owner.

If the ownership if “tenancy in common,” the deceased party’s interest forms part of his/her estate and is distributed according to the will. An estate may require the other owner to buy out its interest. In this case, if the surviving owner can’t qualify for a refinance, they may have to sell the property.

In your case, if you were not willed your grandfather’s interest and you didn’t have joint tenancy, you’d likely have to work a deal with the estate to get his share of the pie. But chat with legal counsel to be sure.

Incidentally, regardless of the ownership structure, everyone on the mortgage has joint liability. In other words, lenders hold all mortgagors (often even the estate) fully responsible if the agreed-on payments are not made.