Can Feds Cut Red Tape When Death, Divorce Threaten Homeownership?

When Calie Taylor’s wife died in 2011, the UPS driver found himself in danger of losing the Bridgeport, Connecticut, home they’d bought nine years earlier.

Taylor had stopped working to care for his ill wife, Chacelyn, before she died and he fell a few payments behind on his mortgage. When he returned to work and tried to set things straight with his mortgage servicer, he got nothing but more grief, says the National Consumer Law Center.

The property had been in both of their names, so he had the right to survivorship for the home, but only Chacelyn Taylor’s name was on the mortgage. The loan servicer refused to talk to him and eventually began to foreclose.

Only after years of probate court filings, legal aid from the Connecticut Fair Housing Center and a complaint filed with Consumer Financial Protection Bureau (CFPB) was Taylor able to get a loan modification and continue to raise his now 14-year-old son in the only home the boy has ever known.

Taylor’s problem is just one example of the troubles that can happen to thousands of struggling homeowners facing foreclosure on property they inherited, the law center said. Another common scenario is when a couple separates and the estranged spouse responsible for the home loan stops making payments, says the National Consumer Law Center, which is urging the CFPB to create regulations streamlining the process of loan transfers and modifications for “successors in interest.”

The surviving spouse or the divorced spouse who kept the house often qualifies for a loan modification to bring the mortgage current and adjust the payment to an affordable level but still can’t get one, says the law center, which identified the three most common problems successors face:

• The brick wall: Servicers claim no modification is possible for a non-borrower.
• The treadmill: Servicers request unnecessary and nonexistent documentation of homeownership.
• The trap door: Servicers refuse to honor modifications they have extended to a successor without the absent borrower’s signature.

The mortgage industry, through the Consumer Mortgage Coalition, told the CFPB that some of the bureau’s proposals would violate privacy rights and violate existing contract law in many states. While it said it shares a desire to allow successors to gain loan account information more easily, it does not want the CFPB to mandate that successors can be assured of getting loan modifications automatically.

The American Bankers Association expressed similar concerns in a comment to the CFPB.

“Foreclosure is the least economically beneficial option for all parties. However, not all successors in interest will have the financial means to repay the mortgage loan,” it said.

The coalition suggested consumers take precautions ahead of time.

“We continue to urge the CFPB to encourage consumer estate planning, including through credit insurance or life insurance, so that successors would be able to handle debt on properties they inherit.”

The official comment period on the rules changes is closed, but what do you think the CFPB should do? How are you prepared to handle the loss of a spouse through death or divorce? Share with us in comments below or on our Facebook page.